Cartoon of the Day: 'Behind' the Scenes at the BLS

Here's how we think the Bureau of Labor Statistics REALLY calculates the monthly jobs number.


Cartoon of the Day: 'Behind' the Scenes at the BLS - Jobs  good numbers  11.07.2014


Takeaway: Our Macro Playbook is a daily 1-page summary of our investment themes, core ETF recommendations and proprietary quantitative market context.


Long Ideas/Overweight Recommendations

  1. iShares National AMT-Free Muni Bond ETF (MUB)
  2. iShares 20+ Year Treasury Bond ETF (TLT)
  3. Vanguard Extended Duration Treasury ETF (EDV)
  4. Health Care Select Sector SPDR Fund (XLV)
  5. Consumer Staples Select Sector SPDR Fund (XLP)

Short Ideas/Underweight Recommendations

  1. SPDR S&P Regional Banking ETF (KRE)
  2. iShares Russell 2000 ETF (IWM)
  3. iShares MSCI European Monetary Union ETF (EZU)
  4. iShares MSCI France ETF (EWQ)
  5. SPDR S&P Oil & Gas Exploration & Production ETF (XOP)




  • Global Macro Spillover Risk: As our research on the Eurozone, China, Japan, Brazil and Russia continues to highlight, global growth is slowing. Even India – which had been our favorite international equity exposure through late-September – is starting to show economic deterioration, on the margin. With #GrowthSlowing in at least six of the world’s top seven economies – four of which are in recession (Brazil), teetering on recession (Japan, Eurozone) or careening towards economic collapse (Russia) – what could possibly go wrong? It would appear the U.S. is the lone holdout – at least according to Consensus Macro “surveys” – although our analysis of the actual economic data continues to show a steady trend of degradation from the 2Q highs. While the “bad house in a worse neighborhood” argument is effective in the FX market where pricing is always relative, we don’t think it has any place in equity investing. Anyone who’s being honest with themselves understands that simultaneous domestic and global slowing is a headwind to the revenue growth and profitability of U.S. corporations. Moreover, the domestically-exposed Russell 2000 (IWM) should be materially outperforming the S&P 500 (SPY), if in fact, the “bad house in a worse neighborhood” argument has any validity... Looking to our Tactical Asset Class Rotation Model (TACRM) for quantitative confirmation, 33% of the ~200 ETFs in the model have a VAMDMI reading less than -1x on a trailing 3M average basis. That’s the highest reading of broad-based negative multi-duration price momentum since the summer of 2012!
  • Follow the Bouncing Ball on Nat Gas: On Tuesday, Keith and I met with one of the best natural resource investment firms on the planet. One of the topics of discussion that stuck with me the most is how shale/tight oil production has impacted natural gas supply in recent years. Specifically, one of the co-PMs remarked that 2/3rds of natural gas supply growth in the U.S. has been from “associated gas” – or the gas that comes out concomitantly with crude oil production. Well, if OPEC is right in their assumption that CapEx associated with U.S. crude oil production is likely to be cut if crude oil prices remain at/near current prices, then it’s reasonable to assume a subdued outlook for natural gas growth as well. Perhaps that’s why TACRM is now generating a “BUY” signal for the United States Natural Gas Fund (UNG). Just something to watch…


***CLICK HERE to download the full TACRM presentation.***



#Quad4 (introduced 10/2/14): Our models are forecasting a continued slowing in the pace of domestic economic growth, as well as a further deceleration in inflation here in Q4. The confluence of these two events is likely to perpetuate a rise in volatility across asset classes as broad-based expectations for a robust economic recovery and tighter monetary policy are met with bearish data that is counter to the consensus narrative.


Oil: More Downside? (11/5)


#EuropeSlowing (introduced 10/2/14): Is ECB President Mario Draghi Europe's savior? Despite his ability to wield a QE fire hose, our view is that inflation via currency debasement does not produce sustainable economic growth. We believe select member states will struggle to implement appropriate structural reforms and fiscal management to induce real growth.


Top Ten Reasons to Stay Short the Euro (11/5)


#Bubbles (introduced 10/2/14): The current economic cycle is cresting and the confluence of policy-induced yield-chasing and late-cycle speculation is inflating spread risk across asset classes. The clock is ticking on the value proposition of the latest policy to inflate as the prices many investors are paying for financial assets is significantly higher than the value they are receiving in return.


Early Look: My Bubble’s Birthday! (11/7)


Best of luck out there,




Darius Dale

Associate: Macro Team


About the Hedgeye Macro Playbook

The Hedgeye Macro Playbook aspires to present investors with the robust quantitative signals, well-researched investment themes and actionable ETF recommendations required to dynamically allocate assets and front-run regime changes across global financial markets. The securities highlighted above represent our top ten investment recommendations based on our active macro themes, which themselves stem from our proprietary four-quadrant Growth/Inflation/Policy (GIP) framework. The securities are ranked according to our calculus of the immediate-term risk/reward of going long or short at the prior closing price, which itself is based on our proprietary analysis of price, volume and volatility trends. Effectively, it is a dynamic ranking of the order in which we’d buy or sell the securities today.

Video Replay: Top Russia Insider to Discuss Developments Inside Putin’s Russia

Yesterday the Macro Team hosted a special “Behind the Curtain” conference call with Michael McFaul, one of the world’s foremost experts on Russia and Vladimir Putin. Until earlier this year, McFaul was the U.S. Ambassador to Russia and held closed-door meetings with Putin and his top lieutenants before finally stepping down out of concern for his family and his own safety.


If you missed it, click here for a full video replay podcast.


Below we offer key take-aways and summary from McFaul’s prepared remarks and a robust Q&A session (starting at 31:24).


  1. Putin is here to stay:  next election in 2018 and in 2024 he could change the constitution to extend term
  2. Sanctions are here to stay:  EU’s “re-approval” in Spring 2015 likely. Germany strong “yes” vote
  3. Future of Ukraine’s Eastern states is uncertain: expect region to come in and out of focus
  4. Economic forces working against Putin, but his popularity unlikely to wane materially


McFaul On the Big Question – Why are we having this conflict with Russia in 2014? 

  • How you answer this question will shape how you view the future:
    • The Rise & Fall of Great Powers:   we all just need to get use to a stronger Russia pushing around weaker neighbors. McFaul believes this theory is dead wrong! Years before Putin was focused on Eurasia Economic Union (with Ukraine as a key member), not annexing Crimea.
    • It’s all the West’s Fault:  Putin is saying this to his public (and the world) as justification for what happened in Ukraine. Noting America is the aggressor (expanded NATO, invade Iraq, etc.). Simply a policy response to America’s aggression.
    • The Big Switch Domestically (Putin takes over as President from Medvedev in late 2011): McFaul names this as the #1 reason there’s a conflict between the West and Russia.  Says differences in personalities of Medvedev and Putin were wider than he had originally realized. Medvedev showed signs of working with the West. However with the handover, Putin quickly cracked down on the opposition, and devised strategy to make the West (including McFaul personally) the “Enemy”. New narrative about the West’s aspiration to destabilize Russia and Putin’s regime. 


On Putin and Move into Crimea:  

  • Putin has a super suspicious view of the West but realizes he must cooperate.
  • Fundamentally he sees the geopolitical world as a “Zero Sum Game”, not a “Win-Win Game” that Obama and even PM Medvedev talk about.
  • Given Putin’s framework, the overthrow of Yanukovych in Ukraine was further confirmation of America’s aggression in the world, and Putin said he’s had enough.
  • McFaul say Putin acted very emotionally and reactively with his decision to go into Crimea.


East vs West on Policy:

  • Says a change in Western policy is not going to change Putin’s policy.
  • U.S. is not destine to be in power imbalance with Russia.
  • But, domestically, Putin needs the narrative that the West is the aggressor, and he’s in power to fight back the Western world, from physical standpoint, but more importantly ideological perspective.


On Ukraine:

  • Believes Ukrainian has no power to assert sovereignty on Luhansk and Donetsk.
  • Putin has upper hand to change the conditions at any point.
  • Views Crimea as very different vs Luhansk and Donetsk on a historical basis, alone (Khrushchev gave Ukraine territory in 1954 as a gift). 60% of Crimea are ethnic Russians (so popular appeal in Russia as well).  Luhansk and Donetsk, less neat line between divided ethnically Ukrainian vs Russian population. He sees the governments in these regions currently as “thuggish” and that they likely have a long road to gain sovereignty. Expect little to happen, if anything at all.  
  • One tension point likely to play out: who pays gas bill for Luhansk and Donetsk:  Russia or Ukraine?


On Sanctions:

  • Putin doesn’t like them (many of his close friends are personally suffering) but he believes this is a price worth paying.
  • Putin more recently has become more suspicious of economic relations with the West. Recent commentary on investors and markets are new – he didn’t speak about such topics before. 
  • Certainly he’s following the price of oil and economic conditions, but McFaul wouldn’t underestimate his staying power – he sees himself in a fight (East vs West) until the end of his time.
  • Believes we could be stuck in place (sanctions won’t escalate nor decrease) for a long, long time.  U.S. doesn’t want to invest more in escalation just over eastern states of Ukraine.  Conversely, Putin wants to maintain his narrative on the West.
  • Sanctions in the EU will have to be re-approved in the Spring 2015 (divided opinions... Germany very clear that need to keep them in place, whereas Hungary hinting that they admire Putin’s system of government and could consider leaving EU… Slovakia also partially in this camp).


Economic Challenges:

  • Ukraine:  If melt-down of Ukrainian economy can present opportunity for further intervention from Putin
  • Russia: McFaul believes it will take years for (poor) economic events to have a political impact.
    • Putin has a high approval rating, over 80%, but for perspective, U.S. President Bush had a 92% favorable president rating when he decided to go into Afghanistan and 75% when he went into Iraq. Both faded over time.  Would expect similar results in Russia, but to just take longer given controlled media.
    • Oil:  states Russia needs oil around $100 to fund the country’s budget. Borrowing of money is getting more difficult, so the sanctions do impact Russia’s ability to extend obligations and/or weather the price of oil. Sees 2015 as a tough macro year for Russia. Shoring up the Ruble will be no easy feat.


On Putin and Support:

  • How long will he stay as President?  Run again in election 2018. If he wins he will not have to change the Constitution until 2024, and most expect him to run again.
  • Putin gets approval rating above 80.
  • Levada Center asks:  if you had to vote for a President on Sunday, who would you vote for?
    • Putin fell below 50% for the 1st time just last week (says Levada is credible pollster) = suggests people like what he’s done but maybe less enthusiastic about him ruling forever.  Yet lots of runway before 2018


Could Moscow see Uprising Like in Kiev?

  • Major factor that differentiates Kiev vs Moscow = Russia earns a lot of money from its energy resources, Putin can use that money to buy off folks and create alliance with the regime.  Ukraine reaps money from its resources as well, but to a lesser extent.  In Ukraine, yes there are oligarchs, but there’s competition among them (unlike in Russia) and they have less ties to the agreements from the political leadership, and therefore they’re politically more flexible. The oligarchs in Russia, if they have divergent views, they’re kept quiet or repressed.


Russia Turning East:

  • For the last several years the Russians and Chinese have been in alignment.
  • Russia’s 30 year gas with China (worth $400B) – some say Russia got a bad deal but it’s a stable source of income. But it’s a loser deal for Russia over the longer term – it’s just an energy deal; Russia is not making or manufacturing anything above the value chain. Doesn’t bode well for future 20-30 years as Putin continues to stifle innovation.
  • Key to remember in the long run, the Chinese have an important economic relationship with U.S.  So this creates limitations on how far China-Russia access can go. 


Matthew Hedrick


LEISURE LETTER (11/07/2014)

Tickers:  MGM, WYNN, HLT, NCLH


  • Nov 10
    • CZR Q3 earnings 4:30 pm , pin 20797507
    • SNOW FYQ1 earnings 5pm
    • SJM Q3 earnings 5:30am
  • Nov 11
    • Galaxy Entertainment Q3 earnings: 3:15am
    • Genting Singapore Q3 earnings:  5am
    • Stations Casino Q3 earnings: 4:30pm
  • Nov 13-16
    • Macau Grand Prix
    • Hedgeye Cruise Pricing Survey
  • Nov 16-18
    • Quantum of the Seas cruise to nowhere


MGM/WYNN – Officially awarded MA licenses.  Both companies intend to break ground next year and have the casinos open by 2017.  WYNN paid its $85 million license fee up front while MGM will pay its fee on November 17. Also, the MA gaming commission voted to extend the southeastern region deadline from December 1 until the end of January. 

Takeaway:  ROI is the question


HLT – (Ithaca Journal) Ithaca Common Council unanimously endorsed proceeding with a land transaction for a new hotel in the block immediately east of the Commons. Council on Wednesday voted to authorize transfer of city ownership of a 32-space parking lot at 320-324 E. State/Martin Luther King Jr. St. to the city’s community-development arm. The resolution also authorized the Ithaca Urban Renewal Agency to enter formal negotiations with Lighthouse Hotels for the city-owned property at the site. Lighthouse proposes a 120-room, seven-story Hilton Canopy hotel. The $19 million project would have a cafe-bar and a restaurant.


Takeaway: Hilton's first openly discussed Canopy - a brown-field redevelopment and at cost per key of approximately $158,000.


WYN – announced it completed a term securitization transaction involving the issuance of $325 million of asset-backed notes. Sierra Timeshare 2014-3 Receivables Funding LLC issued $255 million of A rated notes and $70 million of BBB rated notes.  The notes were backed by vacation ownership loans and had coupons of 2.30% and 2.80%, respectively, for an overall weighted average coupon of 2.41%. The advance rate for this transaction was 88.5%.

Takeaway: Slightly higher interest rates (5-10 bps) than VAC's recent securitization.


NCL – priced $680m senior notes at par (5.25%) maturing Nov 2019


Insider Transactions:

CCL – CEO Gerald Raymond Cahill sold 25,002 shares of the stock on Monday, November 3 at an average price of $40.09 and now directly owns 87,337 shares in the company.


CHH - COO Patrick Pacious sold 33,947 shares on Monday, November 3 at an average price of $53.25 and following the sale and now directly owns 99,211 shares.


Grand Prix – Macau Grand Prix Committee coordinator Costa Antunes revealed that this year’s sale of Grand Prix (Nov 13-16) tickets has exceeded expectations, with tickets for the main stand already sold out. The organizer of the 61st Macau Grand Prix has also predicted that the event will attract more people to Macau this year.


 Takeaway: Shouldn't impact visitation that much


California – North Fork Rancheria may still offer Class II games or it may ask the Bureau of Indian Affairs to approve Class III games, despite a failed Nov referendum.  Station Casinos was to manage the casino.


 Takeaway:  Persistence can pay off




Hedgeye Macro Team remains negative Europe, their bottom-up, qualitative analysis (Growth/Inflation/Policy framework) indicates that the Eurozone is setting up to enter the ugly Quad4 in Q4 (equating to growth decelerates and inflation decelerates) = Europe Slowing.

Takeaway:  We're seeing bottoms up slowing in Europe cruise pricing in our monthly survey. Europe has been a tailwind for CCL and RCL but a negative pivot here looks increasingly likely. Following CCL's earnings release, we recently turned negative on those stocks based on the negative European thesis. 


Hedgeye Macro Team remains negative on consumer spending and believes in muted inflation, a Quad4 set-up.  Following  a great call on rising housing prices, the Hedgeye Macro/Financials team is 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.

It's Still 'Crash Mode' for Treasury Yields

Takeaway: The UST 10YR Yield is at 2.38% this morning, it remains in crash mode for 2014.

It's Still 'Crash Mode' for Treasury Yields - 77


The UST 10YR Yield is at 2.38% this morning. It remains in crash mode for 2014 (down -21% from 3.03% where it started the year), so today’s jobs report really matters – if only because there’s so much asymmetry in SPY vs. everything else in the world.


Immediate-term downside risk in the UST 10YR Yield to 2.22% as outlined in Daily Trading Ranges - we remain very bullish on the Long Bond (TLT, EDV, etc).


November 7, 2014

November 7, 2014 - 1



November 7, 2014 - Slide2

November 7, 2014 - Slide3

November 7, 2014 - Slide4



November 7, 2014 - Slide5

November 7, 2014 - Slide6 

November 7, 2014 - Slide7

November 7, 2014 - Slide8

November 7, 2014 - Slide9

November 7, 2014 - Slide10

November 7, 2014 - Slide11

Early Look

daily macro intelligence

Relied upon by big institutional and individual investors across the world, this granular morning newsletter distills the latest and most vital market developments and insures that you are always in the know.