Morning Macro Call With Keith McCullough: ‘Why I’m Short the S&P 500 and Like Cash Right Now’

Hedgeye CEO Keith McCullough walks through the latest market and economic developments in this complimentary peek behind-the-macro-scenes of today's morning macro call for institutional subscribers.


Daily Trading Ranges, Refreshed [Unlocked]

This is a complimentary look at our proprietary buy and sell levels on major markets, commodities and currencies sent to subscribers weekday mornings by CEO Keith McCullough. It was published November 20, 2014 at 07:40. Click here to subscribe.

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Takeaway: In today's edition of the Macro Playbook, we highlight the slowdown in global growth and how that might impact the U.S. economy/U.S. stocks.


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)




  • Take the Fed’s Word For It On Global Growth: In yesterday’s FOMC minutes, committee members expressed concerns over the impact of slowing global growth on the U.S. economy. We couldn’t agree more. With the advent of this morning’s flash Manufacturing PMI data out of Europe, China and Japan, we received further confirmation of a slowdown in global growth in the month of November. Specifically, in Germany, Manufacturing PMI slowed to 50 from 51.4; in France, Manufacturing PMI slowed to 47.6 from 48.5; in China: Manufacturing PMI slowed to 50 from 50.4 (a six-month low); and in Japan, Manufacturing PMI slowed to 52.1 from 52.4. Our July 15th note titled, "SINGAPORE SAYS, “GLOBAL GROWTH WILL SLOW IN 3Q”"  was actually quite prescient when you delve even further into the recent economic data coming out of Europe, China and Japan.
  • Global Growth Slowing is NOT Good for the U.S. Equity Market: When Keith and I are in meetings with institutional subscribers, #EuropeSlowing remains the theme we spend the least amount of time talking about – primarily because calling for a European recession is trivial at this point in the cycle. Moreover, Japan is already in recession and looks set to remain there, while China’s economic slowdown also looks set to continue per the GDP math and Beijing’s recent guidance. It’s worth noting that in the most recently reported calendar year (2013), China, Japan and Europe  accounted for roughly 40% of both global GDP and global GDP growth on a PPP basis. Moreover, with roughly one-third of S&P 500 revenues coming from abroad, we can’t see how this weakness and commensurate USD strength will not negatively impact the operating results of U.S. companies in the upcoming quarters. Conclusion for perma-bulls: buy high and PRAY for more buyback activity! 










***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.


Early Look: Building Expectations (11/20)


#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.


#Bubbles: S&P500 Levels, Refreshed (11/18)


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.

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LEISURE LETTER (11/20/2014)



  • Nov 23: Pacquiao-Algieri bout at Venetian Cotai Arena


CZR – Bloomberg reported Caesars Entertainment is considering a strategy to convert the operating unit into a REIT (real estate investment trust).  This story followed an earlier comment that debt restructuring talks had broken down between Caesars Entertainment and Silver Point while discussions continue with other First Lien Creditors.

Articles HERE and HERE

Takeaway: Debt is still debt regardless of structure - one of two outcomes to address the excessive leverage is certain -- 1) a debt for equity swap (potential bankruptcy reorganization) or 2) a massive equity issuance.


GLPI – announced that in order to comply with Internal Revenue Service regulations related to its spin-off from PENN, GLPI is required to make a one-time distribution of $38M; as well as, it needs to distribute $6M in order to ensure that it has distributed 100% of its taxable income for the 2014 year.  As a result, the Board of Directors declared a special cash dividend of $0.40 per share on common stock and declared a $0.52 per share dividend; unchanged from prior resulting in a total payment of $0.92 per share for shareholders of record December 2, 2014 and payable December 19, 2014.

Takeaway: One time dividend to comply with IRS regulations, a piece of decent news for GLPI shareholders.  CZR announcement to pursue a gaming REIT is negative for GLPI.


LVS – Jeffrey Schwartz, Co-Founder and CEO Global Logistics Properties, who also is/was a sitting member of LVS' Board of Directors as Director and Chairman of Compensation Committee, Member of Audit Committee and Member of Nominating & Governance Committee and Member of COO Search Committee for Las Vegas Sands Corporation, unexpectedly passed away on November 19, 2014.

Takeaway: We knew Mr. Schwartz and are saddened by this news. Mr. Schwartz was a great individual both personally and professionally and we appreciated his profound wisdom, clarity of thought and provocative conversation.  No doubt Mr. Schwartz was a valuable resource to LVS's significant Asian future.


MGM – Bill Hornbuckle, President of MGM Resorts said MGM is still “very optimistic” about the prospects for casinos in Japan despite the news of a snap general election called for mid-December.

Article HERE

Takeaway: Things have changed in Japan. Hornbuckle has to be more realistic.


MGM & 2282.HK – In commemoration of the 15th anniversary of Macau’s handover, the MGM inaugurated two exhibitions at its Art Space yesterday, featuring two red sandalwood replicas of ancient Beijing buildings and the works of hundreds of photographers which reflected changes to the MSAR. “This time, we want to help people remember that we’ve [belonged to] China, our motherland, for fifteen years, so we’d like to include something from Beijing,” said the MGM vice-president of marketing and communications, Mr Toby Leung, on Tuesday.

Article HERE

Takeaway: We await Chinese President Xi Jinping's visit to Macau on December 19th and 20th.


0678.HK – Genting Hong Kong for the formation of a joint venture with Landing International Development Limited to operate the Jeju Casino under Genting Trademarks. Genting HK will invest KRW130 billion (approximately HKD917 million) in the joint venture as working capital of the casino. Genting HK will subscribe 50% equity interest of Landing International's subsidiary to form the joint venture. The casino is located in Hyatt Regency Jeju hotel and is pursuant to one of the eight gaming licenses in Jeju under the Tourism Promotion Act. The casino is now under renovation and is expected to reopen in January 2015, and is expected to have around 30 gaming tables and 16 slot machines at its reopening.

Article HERE

Takeaway: This is the 2nd agreement Genting has formed with Landing. Earlier this year, Landing International and Genting Singapore announced a JV to develop a $2.2bn integrated resort scheduled to open in 2017.


GEN.SP – Genting Singapore today repurchased 10 million shares for S$11.058 million.  Cumulative shares repurchased year-to-date = 36,684,000 and the maximum shares authorized for repurchase = 1,223,813,684   Following today's 10 million share repurchase, the total shares outstanding = 12,211,352,480.

Article HERE

Takeaway: Genting's share repurchase today was ~30% of today's total share volume.  With Japan casino legislation unlikely any time soon, Genting can focus on buying back stock. The group has approval from shareholders to buy back up to 10% of its paid-up capital or 1.22 billion shares.  


GTK.IM – GTECH Indiana has agreed to produce $320 million in lottery income for the state during the July 2014-June 2015 period. The latest lottery forecast projects the operator only will bring in $289 million. The parent company of GTECH Indiana, which inked a 15-year contract in 2012 to manage Hoosier Lottery marketing, operations and sales, already has told investors it expects to incur the maximum $16 million penalty for failing to meet its annual lottery income goal. The lottery commission can cancel GTECH Indiana's contract to operate the Hoosier Lottery if the company misses its income target by at least 10 percent two years in a row, or three years during any five-year period. Next year, GTECH Indiana is required to produce $365 million in lottery income and $410 million during the 2017 budget year. The lottery income shortfall primarily is due to lackluster ticket sales for Powerball and other big money draw games. Powerball sales totaled $25.6 million in the first third of the budget year, compared to expected sales of $43.5 million and sales of $46.7 million during the same four-month period last year.

Article HERE

Takeaway:  GTECH Indiana has been struggling lately. The US lottery business is on the decline.    


DRH –announced it entered into a purchase and sale agreement to acquire the fee simple interest in The Westin Beach Resort & Spa, Fort Lauderdale ('Hotel') in Fort Lauderdale, Florida for a purchase price of $149.0M (or $344,900 per guest room) and the purchase price represents a 12.0x to 12.5x on the company's projected 2015 Hotel EBITDA.

Article HERE

Takeaway: Another South Florida hotel transaction with "forward" multiples versus historical -- a sign of a maturing property acquisition market.


HLT – filed an S-4/A Registration Statement for $1.5 billion aggregate principal amount 5.625% Senior Notes due 2021 ("Exchange Securities") registered under the Securities Act of 1933 with the desire and intent of exchanging the newly registered Senior Notes for the likekind private placement Senior Notes issued on October 4, 2013.


CCL – Holland America Line's newest ship, Koningsdam, debuts in February 2016 it will do so in the Mediterranean with a series of 12-night cruises.

The sailings, which will be preceded by a single seven-night journey, will sail roundtrip alternating itineraries from Civitavecchia, Italy and Gibraltar and ports of call will include: Katakolon, Piraeus (Athens), Rhodes and Crete, Greece; Istanbul and Kusadasi (Ephesus), Turkey; Cadiz, Malaga, Cartagena and Barcelona, Spain; Naples, Palermo and Cagliari, Italy. Bookings open December 1, 2014 for Itineraries from February 2016 through May 2016.

Article HERE

Takeaway: More capacity coming to Europe in 2016.


MSC Cruises – offered a jump start on Black Friday and Cyber Monday with a special sale lasting through Monday, Dec. 1.  The promotion features some of the line’s best rates of the season on select sailings in the Caribbean, Bermuda and Europe; up to $200 in shipboard credits per stateroom; and balcony staterooms priced at ocean view rates.

Article HERE

Takeaway:  These deals are never early in a highly promotional environment.


NCLH – announced it has completed its previously-announced acquisition of Prestige Cruises International, Inc., the parent company of Oceania Cruises and Regent Seven Seas Cruises, in cash and stock for a total transaction consideration of $3.025 billion, including the assumption of debt


NCLH – announced several resignations including: Michael Hirsch, Senior VP of Sales; Camille Olivere, Senior VP of sales for the Americas; and James Rodriguez, Senior VP National Accounts for Oceania.  In turn, Nikki Upshaw was been promoted to senior VP of Sales for Oceania, who in turn was replaced by Tricia Wolf as VP of Field Sales.


Taiwan Gaming Expansion – Taiwan’s parliament may approve draft casino and gaming legislation before June 2015, as discussion over a bill regulation casino gambling is expected to begin next month, said Liu Day-Yang, director of the Center for the Study of Lottery and Commercial Gaming at the National Taiwan University of Science and Technology. Under the current draft law, casino licenses will be valid for 30 years and tax should not go above 16% of gross gaming revenue - during the first 15 years, casino operators are expect to pay a 7% tax to the local government, in addition to a 7% national tax. The national tax would then increase to 8% after 15 years and to 9% in the last five years of the license.

Article HERE

Takeaway: While the policy initiative would be welcomed by gaming operators who need new growth, local issues could delay legislation and implementation including: the results of local elections on November 29, uncertainty over where potential casinos/integrated resorts could be located (mainland vs. offshore islands) as well as visa issues with mainland China.


Revel Redux – Brookfield US Holdings LLC, the company approved to buy Revel Casino-Hotel for $110 million, is walking away from the transaction. The company made the decision because bondholders refused to rework debt connected to construction of Revel’s power plant. Revel procures its electricity from an adjacent power plant built specifically for Revel's use. The power bill is $3 million a month and Brookfield attempted to lower the price but the utility refused to negotiate.

Article HERE 

Takeaway: More bad news for Atlantic City.  We wonder if the 2nd Philadelphia license had any impact on this decision?  Will shadow horse bidder Glenn Straub step up and buy Revel?  If the deep pockets of Brookfield are unable to make Revel "work" - the likely outcome appears to be a complete shuttering. 


Asia Cruise Trends – The newly-formed Cruise Lines International Association (CLIA) conducted an analysis of the size of 12 Asian passenger source markets as well as the 26 cruise brands operating 52 ships in the region.  Some of the findings include: 

1) During 2013 there were 802 Asia-Asia cruises, in 2015, there will be 981

2) 2013 total capacity was 1.4 million guests for Asia-Asia cruises, while during 2015 total passenger capacity will be 2.05 million, an annual growth of 19.5%

3) during 2013 an additional 73,616 passengers transited through Asia on longer voyages and an estimated 115,360 guests may transit during 2015, 25% per year from 2013.

4) Cruises under one week account for 81% of all voyages in 2015. The 2- to 3-night duration is largest in total with 425 cruises next year. The 4- to 6-night duration is growing fastest, up from 263 to 367 cruises in two years

Article HERE

Takeaway: The Asia growth potential is there. Will it be realized?


China November HSBC Flash Manufacturing PMI 50.0 as compared to 50.4 in October and consensus forecasts of 50.2. 

Takeaway:  More concerning than the flash data point was the commentary that "growth still faces significant downward pressure."  Maybe 6% GDP growth is the new 7%?  Regardless, macroeconomic headwinds for Macau GGR growth persist. 


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:  European pricing has been a tailwind for CCL and RCL but a negative pivot here looks increasingly likely in 2015. Following CCL's F3Q 2014 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.


And We’re Off…

Client Talking Points


Ah that smell of Burning Yen to an immediate-term TRADE oversold signal of $118.64 vs. USD… and the levered long trade to Weimar Nikkei and SPY do not seem to be responding to it (Nikkei only +0.07% on the “bounce”) – what happens if the Yen goes up, for a day – or  a week? #CorrelationRisk is massive right now.


Don’t you hate it when the data doesn’t fit the bullish “recovery” narrative? European PMI’s (both Services and Manufacturing) are awful this morning with our favorite country short posting the worst of the lot (France PMI drops to 47.6!) as Germany teeters on snapping the 50.0 PMI line #EuropeSlowing.


After dropping another -1% yesterday, the Russell is right back into the red for 2014 year-to-date (down -4.2% from its all-time #bubble high of 1208 in July), which begs a very simple question? How high are U.S. GDP expectations for Q414? A: way too high. Stay with #GrowthSlowing Long Bond, Consumer Staples (XLP), Healthcare (XLV) and REITS instead.

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

The Vanguard Extended Duration Treasury (EDV) is an extended duration ETF (20-30yr). U.S. real GDP growth is unlikely to come in anywhere in the area code of consensus projections of 3-plus percent. And it is becoming clear to us that market participants are interpreting the Fed’s dovish shift as signaling cause for concern with respect to the growth outlook. We remain on other side of Consensus Macro positions (bearish on Oil, bullish on Treasuries, bearish on SPX) and still have high conviction in our biggest macro call of 2014 - that U.S. growth would slow and bond yields fall in kind.


We continue to think long-term interest rates are headed in the direction of both reported growth and growth expectations – i.e. lower. In light of that, we encourage you to remain long of the long bond. The performance divergence between Treasuries, stocks and commodities should continue to widen over the next two to three months. As it’s done for multiple generations, the 10Y Treasury Yield continues to track the slope of domestic economic growth like a glove. We certainly hope you had the Long Bond (TLT) on versus the Russell 2000 (short side) as the performance divergence in being long #GrowthSlowing hit its widest for 2014 YTD (ex-reinvesting interest).


The U.S. is in Quad #4 on our GIP (Growth/Inflation/Policy) model, which suggests that both economic growth and reported inflation are slowing domestically. As far as the eye can see in a falling interest rate environment, we think you should increase your exposure to slow-growth, yield-chasing trade and remain long of defensive assets like long-term treasuries and Consumer Staples (XLP) – which work decidedly better than Utilities in Quad #4. Consumer Staples is as good as any place to hide as the world clamors for low-beta-big-cap-liquidity.

Three for the Road


Real Conversations: A Dire Appraisal of Our ‘Broken Global Economy’



If you walk in the footsteps of a stranger, you’ll learn things you never knew.



German PMI for November slows at 50.0 vs. 51.4 October, Germany's Service PMI slows too, 52.1 November vs. 54.4 October.

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