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Macro Notebook 9/11: Oil | Russell 2000 | UST 10YR


Takeaway: Another week of decelerating improvement in the labor market appears to be rolling August's softness into September.

Less Good, Again

Last week, we profiled the labor market data as "still good, but less good". The same could be said about this week's numbers. We're cautious to make too much out of a holiday week, but the numbers suggest a real step backward. The y/y change in NSA initial claims, our preferred measure, actually rose +2.1% this week. Only the third time that's happened YTD. That took the rolling 4-wk average to -7.2% y/y vs -8.5% in the prior week. The data is still reasonably good, but it's not as strong as what we saw in the June/July time frame. 


Taken in conjunction with the weak August payroll report last week, this morning's data suggests that softness is continuing into September.


The Data

Prior to revision, initial jobless claims rose 13k to 315k from 302k WoW, as the prior week's number was revised up by 2k to 304k.


The headline (unrevised) number shows claims were higher by 11k WoW. Meanwhile, the 4-week rolling average of seasonally-adjusted claims rose 0.75k WoW to 304k.


The 4-week rolling average of NSA claims, which we consider a more accurate representation of the underlying labor market trend, was -7.2% lower YoY, which is a sequential deterioration versus the previous week's YoY change of -8.5%

























Yield Spreads

The 2-10 spread rose 9 basis points WoW to 197 bps. 3Q14TD, the 2-10 spread is averaging 199 bps, which is lower by -22 bps relative to 2Q14.






Joshua Steiner, CFA


Jonathan Casteleyn, CFA, CMT


Retail Callouts (9/11): DKS, AMZN, NKE, TGT, EBAY, WMT

Takeaway: Strength in Amazon golf biz is a bad sign for DKS. Thoughts on AAPL’s influence on Nike watch business. RH buying opportunity.



Thursday (9/11)

ULTA - Earnings Call: 5:00pm




RH - 2Q14 Earnings

CLICK HERE to see yesterday's note on RH's earnings.  RH remains our Best Idea Long and one of the best stories in retail.


NKE, AAPL - Watch

Remember the press reports noting that we should expect to see a NextGen Nike Sportswatch in 1H14 at a price point just below $400 to compete with the Adidas ($399) offering? That was set to be a meaningful upgrade from the current Nike SportsWatch, which sells for $150. But 1H14 came and went without a peep from the Nike Timing team. Why? It was clear that something was up when Nike fired its FuelBand team in April.  Apple's Tim Cook sits on Nike's Board, and Nike knew full well about Apple's iWatch plans. We're also inclined to think that Tim Cook said something to the extent of "You're going to come out with a hi-tech sportswatch that's priced $50 above what Apple is launching? That's a big mistake.".  That was probably a pretty simple decision for Nike's Mark Parker to back off that initiative, and piggyback onto the iWatch with a partnered fitness app that promotes Nike's core product in a more commercial way. 


Retail Callouts (9/11): DKS, AMZN, NKE, TGT, EBAY, WMT - Nike v Apple 1



DKS, AMZN, EBAY - ChannelAdvisor Golf Comp Sales


Takeaway: These golf trends are interesting. Amazon's growth in golf equipment is absolutely off the charts, which we think is a good barometer for the excess inventory in the channel. The time of year where most golf equipment is bought at full price is in April and May (likely not at AMZN). Then discounts pick up in June, and accelerate meaningfully as the Summer progresses. Amazon’s numbers, in particular, continue to show staggering acceleration during the summer discounting period, with 63% growth in the latest month.  This does not bode well for DKS, which is still dealing with excess inventory in golf, and is looking to reposition (and potentially exit) a large part of its golf business. As a reminder, Dick's largely serves the 'occasional' golfer, which represents an impressive 44% of golfers. Unfortunately, that group is extremely price sensitive, and accounts for only 19% of golf industry revenue. This is where Amazon competes as well.  Dick's bought Golf Galaxy at a peak in the cycle, and it is getting out at the trough -- not a winning M&A strategy. But the reality is that given the competitive dynamic, we're inclined to think that DKS will fail to participate in any upside in the golf space going forward.


Retail Callouts (9/11): DKS, AMZN, NKE, TGT, EBAY, WMT - 9 10 chart1


Retail Callouts (9/11): DKS, AMZN, NKE, TGT, EBAY, WMT - 9 11 chart3




TGT - Target Links With Toms



  • "Target has teamed up with feel-good footwear brand Toms for a limited-time collection, Toms for Target, launching in time for the holidays. Toms matches every pair of shoes sold with a pair donated to a child in need. Toms calls the program One for One."


WMT - Wal-Mart’s School Supplies Are a Little More Expensive Online



  • "Wal-Mart’s official policy is to have the same prices online as in stores, spokewoman Jaeme Laczkowski says. The difference wasn’t great: at most, a 1.8 percent premium on a $118 checkout."


SHLD - Fitch Cuts Sears Ratings on Cash Burn Concerns



  • "Fitch Ratings cut its credit ratings of Sears Holdings Corp. on Wednesday to double-C from triple-C, citing the company's steep drop in profibility and its cash burn."


Toys ‘R’ Us holiday strategy includes online and in-store enhancements



  • "With just 105 shopping days left until Christmas (as of Sept. 10), Toys “R” Us outlined its holiday strategy at a preview event in New York City.  Among the highlights: free online layaway, enhanced loyalty program, improved online and in-store checkout, and two new in-store shops." 
  • "With an eye to expanding its omnichannel capabilities, Toys “R” Us is in a pilot with Google’s Shopping Express offering shoppers same-day delivery in four markets, with New York and Los Angeles added most recently. It’s also expanded in-store pick-up service to more countries and added shipping from stores to 14 countries including China." 


Malls launch pick-up depots to lure online shoppers



  • "In the next three to six months, SmartCentres Inc. will start testing online purchase stations in three of its Toronto-area shopping centres. Dubbed Penguin Pick-Up, after SmartCentre’s penguin corporate logo, the depots will serve retailers operating in the company’s properties and other e-commerce players which sign on to the program."



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%

HOLX: Removing Hologic from Investing Ideas

Takeaway: We are removing Hologic from our high-conviction stock idea list.

Hedgeye is removing Hologic (HOLX) from Investing Ideas today.


CEO Keith McCullough believes that US small and mid cap stocks, like HOLX, are in a bubble. Additionally, Health Care sector head Tom Tobin sees some cracks in his thesis on HOLX, and says that valuation combined with a weak revenue line this quarter could be a short term negative for the shares. Tobin says he has to make some aggressive assumptions to model revenue into the company’s $630 to $640 million range. 

HOLX: Removing Hologic from Investing Ideas - Hologic Logo RGB

Tobin stresses the importance of the September Tomo Tracker results (Hedgeye proprietary data), which will be key to the company’s quarter. Additionally, subsequent months of placement data before and after the reimbursement decision in November, which is still controversial, will be THE critical data to know and watch. Tobin says that over the long term, the stock could double, though.


Here’s a sneak peek behind the scenes inside of Hedgeye as we were evaluating whether or not to remove HOLX from Investing Ideas. It was a debate between the coach, Keith McCullough, and the player, Tom Tobin. Tobin wrote this note below discussing HOLX:


[At a fund] I would be telling my PM (portfolio manager) to take down the position, but not eliminate it.

Embracing the uncertainty of how the data leans (high valuation, +performance, possible negative surprise on revenue) is the key here.


Player: I am sitting on some good performance, I like the long term, but I see some short term risk. Data point 1, data point 2, etc….


Coach: Let’s book it, what I see from my seat doesn’t look good for the name.  I hate this market and want to take down long exposure.


Player:  But it could double from here! Be patient, you are overreacting.  I am just covering myself by sounding an alarm.  I may be  misreading how the street will react, and there is always a chance I am being way too worried about what other people think.


Coach: Relax. We’ll buy it back.


Player: That never happens.  If I am wrong, the stock will be up and you’ll wait for a pullback that never comes and all of my research gets wasted.  I put so much into this it will be heartbreaking to see us not participate.


Coach:  OK.  Let’s sell half, more if it rallies into the number, less if it sells off.  Good?


Player: Phew, that sounds good. If they puke the quarter we can double down.  I’ll keep you posted as I update key data.

LEISURE LETTER (09/11/2014)

Tickers: PNK, MGM, LHO, HLT


  • Sept 11:
    • Macau Legend at Credit Suisse Macau Gaming Day
    • MGM China at Credit Suisse Macau Gaming Day
    • Sand China Ltd at Credit Suisse Macau Gaming Day
  • Sept 12: SNOW F4Q14 11:30 am
  • Sept 16: Trump Plaza closes
  • Sept 17-18: Hedgeye Cruise Pricing Survey mid-Sept


PNK – in the BofA gaming conference, PNK said it has engaged Skadden Arps law firm and Goldman Sachs to analyze a possible REIT spin-off. 

Takeaway:  As we mentioned before, a tax-free spin is highly unlikely.


MGM – The Casino Control Commission voted to let MGM reclaim its 50% ownership of the Borgata. Upon receipt of the required approvals, MGM's interest in Borgata, the approximately $86 million of cash and investments, and the title to certain leased real property in Atlantic City in the trust will be transferred to MGM.  Authority to grant the requisite administrative approvals has been delegated by the Commission to its Chairman, and receipt of the approvals is presently expected to occur in the next 30 days. 

Takeaway:  Decision is not surprising and the one-time trust transaction will boost earnings by 18 cents.


LHO – announced it has entered into a definitive contract to sell Hotel Viking in Newport, Rhode Island for $77 million. The Company expects the transaction to close this week. The Company acquired the hotel in June, 1999 for $27 million. In conjunction with the sale of Hotel Viking, the Company is executing a reverse 1031 exchange with Hotel Vitale, which it purchased during April, 2014.

Takeaway:  Improving the quality of the hotel portfolio by selling assets in underperforming markets and tertiary markets.


HLT – Hilton Worldwide files 90M share offering for holder Blackstone through Deutsche Bank, Goldman, BofA/ML, and Morgan Stanley

Takeaway:  Huge offering but part of long-term unwind.


Visitation (Macau Business) – Mid-Autumn Festival visitors increased 1.93% YoY to 470,072 visitors

Takeaway: At least visitation isn't declining. 


Macau permits (Xinhua) – Mainlander exit-entry Macau permits go digital 

 Takeaway: Quicker visitation process ahead of Golden Week

Revel (WSJ) – Glenn Straub, a real-estate developer, is offering $90 million in cash to acquire the casino and resort through his Polo North Country Club.  Alex Meruelo, whose California-based Meruelo Group last year made a failed attempt to buy the Trump Plaza casino in Atlantic City, and Carl Icahn also made offers.

Takeaway: A meager lifeline for the $2.4bn resort.


NY – Gaming Facility Location Board expects to award the four casino licenses sometime in October.  


NJ Sports betting (NorthJersey.com) –  Monmouth Park operator Dennis Drazin said Wednesday that he has agreed to a 45-day moratorium on offering sports betting at the Oceanport racetrack, delaying a potential showdown with the National Football League and other sports leagues until next month. 

Takeaway:  Monmouth opened their mouth too soon yesterday


Greater Boston Gaming License Update – Wynn and Mohegan have until Friday at 5 pm to respond to various terms and conditions put back to each organization by the MA Gaming Commission.   The Commission will weigh and consider the responses over the weekend and reconvene deliberations on Monday at 11 a.m

Takeaway:  Wynn is leading the race, for now


Antigua & Barbuda Seeks Gaming Dispute Resolution – Antigua and Barbuda is seeking US$100 million to settle the long standing dispute over internet gaming with the United States.


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.

27 Up, 27 Down

This note was originally published at 8am on August 28, 2014 for Hedgeye subscribers.

“Have no fear of perfection, you’ll never reach it.”

-Salvador Dali


Last night I enjoyed my first major league baseball game of the summer.  It couldn’t have been a more perfect night.  I had cute Southern gal on my arm and the weather was almost perfect.  Sadly, the hometown New York Mets lost in a 3 -2 heartbreaker.


Of course, perfect evenings, days, and stock market runs never last forever.  As sad as that is, in life, business, and as stock market operators our luck and performance will always ebb and flow and perfection, should it occur, happens oh so rarely.


In baseball perfection is often epitomized by the so called “perfect game”.   A perfect game occurs when the pitcher (or a combination of pitchers) retires 27 batters in a row through nine innings.  The pitcher cannot allow any hits, walks, hit basemen, or any opposing player to reach base for any other reason. 


Perfection in this sense is extremely rare.   In fact, the feat has only been achieved 23 times in major league baseball history and only 21 times since the modern era began in 1900.  The last time a perfect game was pitched occurred on August 15, 2012 by Felix Hernandez of the Seattle Mariners.


27 Up, 27 Down - EL chart 2


According to Wikipedia, the first known use in print of the term perfect game occurred in 1908 in the Chicago Tribune.  Report I.E. Sanborn wrote the following about Addie Joss’s performance against the White Sox:


“. . . it was an absolutely perfect game without run, without hit, and without letting an opponent reach first base by hook or crook, on hit, walk, or error, in nine innings.”



As it relates to global markets, what is perfection? Is it the SP500 at all-time highs? Is it German bund yields at all-time lows? Is it corporate debt issuance at generational highs and terms at generational lows?  Is it car loans at zero percent interest for a 9-year term? Or is it an all-time high in the number of uniformed market mavens appearing on T.V.?


Back to the Global Macro Grind


Those long of European equities this morning are not dealing with perfect portfolio performance.  Led by Russia down just under 200 basis points, European equities are red across the board this morning. 


Even as bottoms-up stock pickers in Europe continue to have edge, the U.S. based macro asset allocators seems increasingly concerned about European growth, which was the original reason for being long Europe coming into the year.  Clearly, eight months and a life time ago now!


In the Chart of the Day, we compare the interest rates of France to Germany and to the U.S.  As you can see, interest rates in these two key European  markets have been falling off a cliff versus the U.S.   This is probably the best real time market indicator of future economic growth that we know of but, as the Europe bulls would also argue, decelerating growth leaves the door open for more

aggressive easing by the European Central Bank. 


This, then, is the new, new bull thesis for European equities. Specifically, that by burning the Euro, Draghi will be able to inflate European equities.  But with German 10-year yields below 1.0% and France not far behind, how much incremental easing is already priced in? 


As the Wall Street Journal writes this morning, “some sell-side economists, including JPMorgan, Deutsche Bank and Nomura are now pricing in policy easing next week.”   Expectations will always be the root of all heartache, won’t they?

One of our favorite sovereigns on the short side continues to be France.  As my colleague Matt Hedrick noted yesterday:


“Just two weeks ago France’s government cut its GDP forecast in half (again) to 0.5% (from 1.0%) for 2014 and it will likely miss its FY deficit target of 4%.  News this week of President Hollande reshuffling his government (after Economy Minister Arnaud Montebourg stepped down on Monday), is confirming evidence to us that the policies of Hollande’s government are not on track to return growth to the economy over the medium term. That Hollande himself is wildly unpopular, with a paltry approval rating of 17%, furthers the outlook that the government’s pledge that the “recovery is there” is grossly disingenuous.”


Political upheaval and growth getting cut in half are as good a reason as we know to, at a minimum, invest elsewhere if not to get outright short.

Speaking of short ideas (one of Hedgeye’s favorite investment topics) our firebrand energy analyst Kevin Kaiser is adding a new short to the firm’s Best Ideas list this morning and will be hosting a call to discuss his thesis on September 3rd.   As Kaiser writes:


“VNR is a serial-acquisition / roll-up story that now sports a $2.5 billion market cap and $4.0 billion enterprise value after 22 separate acquisitions since 2008. It is owned primarily by retail investors for its outsized distribution yield (8.5%) and monthly distribution payments. VNR has actually trademarked the slogan, "The Monthly Distribution MLP.


But what unwitting investors don't realize is that VNR finances its distribution payments with capital raises - call that what you want to call it. In our view, VNR's "game" is at the beginning of its end. When VNR's distribution is ultimately cut, investors will discover that the Fair Value of VNR is substantially below the current market price.”


Vanguard is a whole lot of yield, with very minimal cash flow.  Usually a toxic mix!

Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 2.32-2.41%

SPX 1985-2013

CAC 4152-4439

USD 81.91-82.78

EUR/USD 1.31-1.33

NatGas 3.85-4.06


Keep your head up and stick on the ice,

Daryl G. Jones

Director of Research


27 Up, 27 Down - Chart of the Day

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