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LEISURE LETTER (12/01/2014)

Tickers:  FLL, IKGH, CCL

EVENTS

  • Dec 2: 11 am ISLE Q2 2015 earnings
  • Dec 8: 10:30 MTN Q1 2015 earnings
  • Dec 8: Golden Nugget Lake Charles grand opening?
  • Dec 12: Trump Taj Mahal Closing
  • Dec 15: CoD Manila opening?
  • Dec 17:  Upstate NY casino decision

COMPANY NEWS

FLL – Announced the appointment of Daniel R. Lee as Chief Executive Officer and the favorable resolution of issues with its stockholder group -- the Board has been increased from five to nine members and the Company accepted the resignations of Andre M. Hilliou and Mark J. Miller as directors and entered into Separation Agreements with respect to their employment. To fill the resulting six vacancies, W.H. Baird Garrett, Raymond Hemmig, Ellis Landau, Daniel R. Lee, Bradley M. Tirpak and Craig W. Thomas have been appointed to serve as directors, each subject to normal and customary regulatory approvals. Mr. Lee will replace Mr. Hilliou as the Company’s Chief Executive Officer.

Takeaway: Mr. Lee makes his return to public company gaming, this time in a turnaround role at FLL.

 

IKGH – reported Q3 2014 results including EPS of ($0.02), revenues of $51.9 million and rolling chip turnover of $4.3 billion.  The company noted full year 2014 rolling chip turnover guidance of $16.8 billion to $17.5 billion, down from $17 billion to $19 billion.

Takeaway: Disappointing VIP rolling chip trends prevail 

  

CCL – Seabourn ordered a second ultra-luxury ship from Fincantieri, through the exercise of the option which was included in the order for the first vessel in early 2014. The ship, due to join the Seabourn fleet in spring 2018 and will be a sister ship to the newbuild announced earlier this year, scheduled for delivery in late 2016. These ships will continue the fleet modernization that began in 2009. The all-suite ship will be approximately 40,350 gross tons, 210 meters long and 28 meters wide and will be able to reach a cruising speed of 18.6 knots. It will carry up just 604 guests, accommodated in 302 spacious suites, all with a private balcony. 

Takeaway:  After transferring 3 Seabourn ships to Xanterra in 2013, Seabourn is back on the growth track.  Ultra-luxury is one cruising segment where demand growth is outpacing supply growth.

 

Virgin Cruises Government Investment Corporation of Singapore (GIC) will join the buyout firm Bain Capital as a founding shareholder in Virgin Cruises and will invest a 'substantial amount'.  At least one Middle East sovereign wealth fund and a number of family offices and high net worth individuals are also believed to be investing, according to private equity sources.  A statement about Bain Capital's involvement, revealed by Sky News last month , is expected to be made this week.

 

Sources said that Virgin Group would itself invest more than $100m (£63m) in shares in Virgin Cruises, using funds recycled from the proceeds of the two recent flotations.  Details of the launch plans for Virgin Cruises remain sketchy, although it is thought likely to be targeting a maiden voyage in 2019 and be based in Miami. Bankers said it would raise approximately £500m in equity and a debt package worth substantially more - possibly as much as £1bn.

Article HERE

Takeaway:  Virgin Cruises gets another important investor.  

 

INDUSTRY NEWS

Macau VIP Gaming Segment in Ruin – Junkets are on the hook for a surge in bad debts as China's economic slowdown and a crackdown on corruption chase some VIP gamblers away. With little access to credit and slow repayments, the capital to fund the business isn't flowing. Heng Sheng, one of the largest junket operators, told investors in October that 30% of the outstanding debt owed to its agents was over a year old. Many gamblers were making monthly installments rather than the normal practice of paying in full. Wealthy coal baron Lu Zhong Lou, ranked among China's wealthiest tycoons by Forbes, the 49-year-old from Shanxi province frequented luxurious casinos including Wynn Macau Ltd's caramel-hued VIP parlors and Galaxy Entertainment Group's diamond-encrusted saloons, owes junkets and Chinese businessmen as much as $HK3.5 billion ($451 million), according to his creditors and local media. 

Article HERE

Takeaway: Junket bad debt and lack of funding capital could lead to a more severe and protracted downturn in VIP gaming revenue. 

 

November Macau GGR – Nov GGR totaled HKD 23.562bn, down 19.6% YoY and down 13.4% versus October.  Market shares as follows:

  • SJM:  22.6%
  • Sands China:  22.6% 
  • Galaxy:  21.5%
  • MPEL:  13.5%
  • MGM China:  11.0%
  • Wynn Macau:  8.9% 

Article HERE

Takeaway:  Nov was in-line with recently revised (lower) Street expectations.

 

New Macau Secretary for Economy & Finance – Lionel Leong Vai Tac was confirmed on Monday as Macau’s next Secretary for Economy and Finance, the official that oversees the city’s gaming industry. Mr Leong replaces Francis Tam Pak Yuen, who has been in the post since Macau’s handover from Portuguese administration in 1999.

Article HERE

Takeaway: Widely expected as we noted in our November 11 Leisure Letter. We look forward to Mr. Leong Vai Tac's policy platform and stance given his prior relationships with the Macau casinos and hotels.

  

Macau Property Values Forecasted to Drop – Midland Realty (Macau) Ltd forecasts that real estate prices will fall by 5% next year Midland Realty's CEO Ronald Cheung, said the rise in prices is slowing as the gaming business slumps and investors seek property over the border on Hengqin Island. “Visa restrictions have been tightened for mainlanders, gaming revenue is dropping and interest rates have been raised. All these factors have contributed to the instability of the real estate market,” Mr Cheung said.

Article HERE

 

Hong Kong Protests Escalate – Last night and early this morning in Hong Kong, protesters fought police armed with pepper spray, batons and water hoses on Lung Wo Road in Admiralty. Earlier today, an injunction was granted to clear an area just west of the main Admiralty protest site. That sparked fears of more violence after what was already some of the worst unrest in two months of protests.

Article HERE

 

Communist Party of China Crackdown – The Chinese Government has commissioned an 'adultery map' of cheating members of the Communist Party, to name and shame officials and civil servants embroiled in scandals. The map was created by the People's Daily, the Communist Party's flagship newspaper, based on information obtained from the Central Commission for Discipline Inspection (CCDI), China's anti-corruption unit. The CCDI has been tasked by Chinese President Xi Jinping to weed out corruption, extravagance and breaches of Communist Party discipline – of which adultery is one.

Article HERE

Takeaway: The crackdown widens beyond corruption and extravagance.

 

China H7N9 Bird Flu – China confirmed a new human infection of the deadly H7N9 avian influenza virus, state news agency Xinhua said, the first case this winter in the southern province of Guangdong. A 31-year-old woman from the provincial city of Dongguan, was confirmed on Friday to have been infected with the virus, Guangdong's health and family commission said in a statement on its website. The patient, in critical condition, is being treated in the provincial capital of Guangzhou, it added. The H7N9 bird flu first infected three people in China in March 2013. Since then, it has since infected more than 450 people, killing 175 of them.

Article HERE

Takeaway: Bird flu headlines have taken a backseat lately

 

Cyprus Casino Expansion – Various gaming operators have indicated Interest in building and opening a integrated resort and casino on the Greek-controlled southern half of Cyprus, including Caesars Entertainment, Genting and Las Vegas Sands. The proposed casino legislation and regulations will be submitted to the Cypriot House of Representatives in early 2015 with the aim of selecting a casino operator by August 2015. The bill calls for a casino with at least 100 gaming tables, 1,000 electronic gaming machines and an accompanying 500-room hotel. The casino will pay 15% tax on gross gaming revenue, with annual license fees of €2.5m per year for the first four years, rising to €5m per year in years four to eight. Fees for subsequent years, as well as the initial license fee, have yet to be determined.

Article HERE

Takeaway:  What was once a 5k EGM opportunity has been shrunk to 1k.

 

Foxwoods Seeks Liquor Exemption – Foxwoods Resort Casino CEO Felix Rappaport says Connecticut’s casinos are at a disadvantage in the region because they have to stop service at 1 a.m. on weekdays and 2 a.m. on weekends even though they offer gambling at all hours. He wants the state to grant an exemption to casinos. Atlantic City casinos serve alcohol 24/7, and liquor is served until 4 a.m. at New York’s gambling facilities. Rappaport says he expects Massachusetts casino developers will lobby for changes to the law cutting off service there at 2 a.m.

Article HERE

 

Illinois Video Gaming – Since video gambling began in Illinois two years ago, the slot-like terminals have shown up in places lawmakers never imagined - floral shops, laundromats, liquor stores and gas stations. They’re also now the main attraction at dozens of storefront bistros and cafes geared toward women. Video gambling has become big business for the state, but it’s also raised some second thoughts in the process.
Article HERE

Takeaway:  IL VGT market will be peaking soon anyway, probably around 22.5-23k units.

 

MACRO

China Official November manufacturing PMI 50.3 vs 50.6 consensus and 50.8 in October

 

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.


Monday Mashup: YUM, BLMN and More

Reminder: We are hosting a call tomorrow, December 2nd, at 10am EST to run through our long thesis on YUM.  We will send out materials and dial-in information tomorrow morning.

 

Monday Mashup: YUM, BLMN and More - 1

 

Recent Notes

11/24/14 Monday Mashup: YUM, RUTH and More

11/25/14 Best Idea Call Invite: Long YUM

 

Events This Week

Tuesday, December 2nd

  • YUM Hedgeye Best Idea Call at 10am EST

Wednesday, December 3rd

  • BOBE earnings call 10am EST

Thursday, December 4th

  • SBUX Investor Day at 11am EST

 

Chart of the Day

The Restaurant Value Spread, which turned positive in May for the first time in the prior 25 months, continues to widen sequentially.

 

Monday Mashup: YUM, BLMN and More - 2

 

Recent News Flow

Monday, October 24th

  • RRGB announced the opening of its newest restaurant in South Florida. 
  • PNRA announced the resignation of EVP and CMO, Michael Simon.  Mr. Simon accepted a new senior leadership position with Bai Brands.  Chris Hollander, VP of Marketing at Panera, will fill Mr. Simon's vacancy while the company conducts an internal and external search for a replacement.
  • PZZA announced the acquisition of Pizza Corner stores in South India.  Papa John's will convert these stores to Papa John's branded restaurants through 1Q15.

Tuesday, October 25th

  • TXRH COO, Steve Ortiz, announced his retirement, effective January 12, 2015.  Mr. Ortiz has been with the company for 18 years and served as COO since 2004.  The company is currently working on an agreement with Mr. Ortiz to become a franchisee in the San Diego area.  In order to fill this vacancy, Doug Thompson has been promoted to VP of Operations and will report directly to CEO Kent Taylor.

Wednesday, October 26th

  • BWLD elected Cindy L. Davis to its expanded Board of Directors.  This addition expands the board to eight members.  Ms. Davis most recently served as VP of Nike and President of Nike Golf from 2008 to 2014.

Friday, October 28th

  • BLMN signed a purchase agreement to sell Roy's Restaurants to United Ohana, LLC.  The transaction is expected to close in the next 30-60 days.

 

Sector Performance

The XLY (+2.7%) outperformed the SPX (+0.7%) last week, as both casual dining and quick service stocks, in aggregate, outperformed the SPX Index.

 

Monday Mashup: YUM, BLMN and More - 3

 

Monday Mashup: YUM, BLMN and More - 4

 

XLY Quantitative Setup

From a quantitative perspective, the sector remains bullish on an intermediate-term TREND duration.

 

Monday Mashup: YUM, BLMN and More - 5

 

Casual Dining Restaurants

Monday Mashup: YUM, BLMN and More - 6

Monday Mashup: YUM, BLMN and More - 7

 

Quick Service Restaurants
Monday Mashup: YUM, BLMN and More - 8

Monday Mashup: YUM, BLMN and More - 9

 

Howard Penney

Managing Director

 

Fred Masotta

Analyst


Retail Callouts (12/1): Hedgeye Retail Idea List, Black Friday Data Points, KSS, TGT, M, FL, DKS, DG

Takeaway: Two changes to Hedgeye Retail Ideas List: HIBB, BBY. Initial Black Friday/Thanksgiving read throughs = not positive.

HEDGEYE RETAIL IDEA LIST

Retail Callouts (12/1): Hedgeye Retail Idea List, Black Friday Data Points, KSS, TGT, M, FL, DKS, DG - 12 1 chart1

 

This Week's Changes Hedgeye Retail Idea List

  1. Moved HIBB higher on the Short Bench -- as close as we can get without it being a core short. We're convinced that HIBB's capital intensity is heading higher while margins are likely to head lower.
  2. Took Best Buy off our Long Bench. This was a TRADE idea for us. The stock's 33% run since we started evaluating it in October doesn't leave much left for us -- at least not without outsized risk.

 

EVENTS TO WATCH

Retail Callouts (12/1): Hedgeye Retail Idea List, Black Friday Data Points, KSS, TGT, M, FL, DKS, DG - 12 1 chart2

 

 

COMPANY HIGHLIGHTS

Retail Callouts (12/1): Hedgeye Retail Idea List, Black Friday Data Points, KSS, TGT, M, FL, DKS, DG - 12 1 chart3

The initial data points from Black Friday weekend are not good. Actually, they're flat-out bad. That's really no surprise. The 'sales hype' engine that is fueled by the retailers in advance of Thanksgiving every year ran unusually hot this year.  Couple that with a 16% run in the XRT from the October lows, and a 21x p/e for retail, and it's really not a good combination.

 

Yes, Cyber Monday could help save the day as consumers shift to online channels. But keep in mind that IBM's Online Sales index for Thursday and Friday was +11.3%, which is an 800bp deceleration from the 19.3% level was saw over the same period last year. Cyber Monday will definitely be positive, but perhaps not as positive as last year. Overall, we're hard pressed to think we'll see Retail Sales(ex. Food, Auto, & Gas) above the 3.3% rate we saw last year.

 

One concern we have with the shift to online is 1) e-commerce is lower margin for department store and multi-line retailers -- full stop. It's higher margin for brands like Nike and Ralph Lauren. But not for any retailer with a basket size under $150.  2) Retailers don't know where sales will show up -- in store or on-line. As such, they need to keep stores fully-staffed (at 2-3x pay on Thanksgiving) in order to satisfy demand that might or might not be there.  Our point is that it is dilutive both ways.

 

We still think shorting KSS is the best way move here. We'd also short TGT, M, FL, DKS, and DG.

 

 

OTHER NEWS

 

UA - Person of the Year: Kevin Plank

(http://www.wwd.com/footwear-news/business/person-of-the-year-kevin-plank-8049557?module=Footwear%20News-Business-third)

 

Zell Confirms Bid for Grocery Stores to Be Shed by Albertsons

(http://www.bloomberg.com/news/2014-11-30/zell-confirms-bid-for-grocery-stores-to-be-shed-by-albertsons.html)

 

"Billionaire investor Sam Zell confirmed he’s interested in snapping up about 140 stores to be divested as Cerberus Capital Management LP acquires Safeway Inc. and merges it with the Albertsons LLC grocery chain."
 

JWN, AMZN, URBN, ZU, AEO - Survey: Nordstrom, Amazon most engaged brands on Pinterest

(http://www.chainstoreage.com/article/survey-nordstrom-amazon-most-engaged-brands-pinterest-0)

 


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.

MONDAY MORNING RISK MONITOR: KEEP YOUR EYES ON RUSSIA

Takeaway: Russia looks increasingly unstable as Sberbank moves into dangerous CDS territory.

Current Ideas:

MONDAY MORNING RISK MONITOR: KEEP YOUR EYES ON RUSSIA - 19.2

 

Key Takeaway:

Russia remains a major area of global risk exposure. Russia's largest bank, Sberbank, which holds roughly half of all retail deposits for the country, is now trading at over 400 bps on its credit default swaps. The "danger zone" is generally regarded as anything north of 300 bps. With oil continuing to plunge following OPEC's move to drive marginal shale producers out of business, the embedded risk in Russia's banking system is growing quickly. Consider this simple example. Energy still accounts for 20-25% of Russia's GDP, and energy prices have fallen ~30% in the last two months. Multiplying those two weightings would imply that Russia's economy is at risk of suffering a decline of 6-7.5%. Compare that with the 8.2% decline experienced by the US Economy in 4Q08 during the height of the US Great Recession.

 

The XLF rose 0.78% last week, as stocks rose globally, outperforming the S&P 500, which rose 0.2%.  The Global Dow rose 0.07%.  Financials are performing well in 2014 at +11.6%, right in the middle of sector performance with Healthcare the highest (+25.6%) and Energy the lowest (-9.8%).

 

Financial Risk Monitor Summary

 • Short-term(WoW): Positive / 6 of 12 improved / 1 out of 12 worsened / 5 of 12 unchanged

 • Intermediate-term(WoW): Positive / 5 of 12 improved / 3 out of 12 worsened / 4 of 12 unchanged

 • Long-term(WoW): Positive / 2 of 12 improved / 0 out of 12 worsened / 10 of 12 unchanged

 

MONDAY MORNING RISK MONITOR: KEEP YOUR EYES ON RUSSIA - 15

 

1. U.S. Financial CDS -  Swaps showed broad tightening last week with CDS for 25 out of 27 domestic financial institutions tightening.    

 

Tightened the most WoW: CB, MMC, AIG

Widened the most/ tightened the least WoW: UNM, GS, WFC

Tightened the most MoW: MMC, ACE, AIG

Widened the most MoM: GNW, TRV, UNM

 

MONDAY MORNING RISK MONITOR: KEEP YOUR EYES ON RUSSIA - 1 2

 

2. European Financial CDS - Swaps also were mostly tighter in Europe last week. At the median, European swaps tightened by -8.5%.  Only Greek and Russian bank CDS widened modestly: Greece by about 3.1% and Russia by 2.5%. We would call out Russia's Sberbank, which is now north of 400 bps, reflecting the rising risk in the Russian economy. 

 

MONDAY MORNING RISK MONITOR: KEEP YOUR EYES ON RUSSIA - 2

 

3. Asian Financial CDS, similar to other global markets, tightened last week. The Chinese stock market had its best week in four years, and the Bank of China showed the second biggest tightening in the Asian market.

 

MONDAY MORNING RISK MONITOR: KEEP YOUR EYES ON RUSSIA - 17

 

4. Sovereign CDS – Sovereign swaps mostly tightened over last week. Spanish sovereign swaps tightened by -12.5% (-13 bps to 91 ) and American sovereign swaps widened by 8.9% (1 bps to 18).

 

MONDAY MORNING RISK MONITOR: KEEP YOUR EYES ON RUSSIA - 18

 

MONDAY MORNING RISK MONITOR: KEEP YOUR EYES ON RUSSIA - 3

 

MONDAY MORNING RISK MONITOR: KEEP YOUR EYES ON RUSSIA - 4

 

5. High Yield (YTM) Monitor – High Yield rates rose 3.4 bps last week, ending the week at 6.14% versus 6.10% the prior week.

 

MONDAY MORNING RISK MONITOR: KEEP YOUR EYES ON RUSSIA - 5

 

6. Leveraged Loan Index Monitor – The Leveraged Loan Index rose 1.0 points last week, ending at 1882.

 

MONDAY MORNING RISK MONITOR: KEEP YOUR EYES ON RUSSIA - 6

 

7. TED Spread Monitor – The TED spread fell 0.4 basis points last week, ending the week at 22.1 bps this week versus last week’s print of 22.49 bps.

 

MONDAY MORNING RISK MONITOR: KEEP YOUR EYES ON RUSSIA - 7

 

8. CRB Commodity Price Index – The CRB index fell -4.5%, ending the week at 254 versus 266 the prior week. As compared with the prior month, commodity prices have decreased -6.7% We generally regard changes in commodity prices on the margin as having meaningful consumption implications.

 

MONDAY MORNING RISK MONITOR: KEEP YOUR EYES ON RUSSIA - 8

 

9. 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 tightened by 2 bps to 8 bps.

 

MONDAY MORNING RISK MONITOR: KEEP YOUR EYES ON RUSSIA - 9

 

10. Chinese Interbank Rate (Shifon Index) –  The Shifon Index fell less than 1 basis point last week, ending the week at 2.58%. The Shifon Index measures banks’ overnight lending rates to one another, a gauge of systemic stress in the Chinese banking system.

 

MONDAY MORNING RISK MONITOR: KEEP YOUR EYES ON RUSSIA - 10

 

11. Chinese Steel – Steel prices in China fell 0.6% last week, or 17 yuan/ton, to 2948 yuan/ton. We use Chinese steel rebar prices to gauge Chinese construction activity, and, by extension, the health of the Chinese economy.

 

MONDAY MORNING RISK MONITOR: KEEP YOUR EYES ON RUSSIA - 12

 

12. 2-10 Spread – Last week the 2-10 spread tightened to 170 bps, -11 bps tighter than a week ago. We track the 2-10 spread as an indicator of bank margin pressure.

 

MONDAY MORNING RISK MONITOR: KEEP YOUR EYES ON RUSSIA - 13

 

13. XLF Macro Quantitative Setup – Our Macro team’s quantitative setup in the XLF shows 0.5% upside to TRADE resistance and 0.9% downside to TRADE support.

 

MONDAY MORNING RISK MONITOR: KEEP YOUR EYES ON RUSSIA - 14

 

Joshua Steiner, CFA

 

Jonathan Casteleyn, CFA, CMT

 


December 1, 2014

December 1, 2014 - Slide1

 

BULLISH TRENDS

December 1, 2014 - Slide2

December 1, 2014 - Slide3

December 1, 2014 - Slide4

December 1, 2014 - Slide5

 

BEARISH TRENDS

 

December 1, 2014 - Slide7 

December 1, 2014 - Slide8

December 1, 2014 - Slide9

December 1, 2014 - Slide10

December 1, 2014 - Slide11

December 1, 2014 - Slide12
December 1, 2014 - Slide13

 


Oil, Russia and Italy

Client Talking Points

OIIL

If consensus didn’t have inflation expectations (instead of #quad4 deflation), oil wouldn’t be moving like this; with the refreshed risk range of $63.86-71.12, realize that a lot of bad things happen to levered equities (MLPs) and high yield debt, even if this crash in oil “bounces” back to the top-end of my range.

RUSSIA

Ruble down 6% since Friday (-40% year-to-date) making this the biggest FX crash since 1998 (global macro market #Intereconnectedness mattered then, and it should now) – Russian stocks -3.4% to -32.1% year-to-date.

ITALY

Amidst a broad base of slowing global economic data this morning (Japanese Auto Sales -13.5% year-over-year for NOV!), Italy reminds ECB President Mario Draghi that he has not been able to ban recessions; Italy Q3 GDP -0.5% year-over-year and the Italian stock market -1.3% remains bearish TREND despite huge QE expectations going into ECB on Thursday.

Asset Allocation

CASH 64% US EQUITIES 0%
INTL EQUITIES 0% COMMODITIES 0%
FIXED INCOME 30% INTL CURRENCIES 6%

Top Long Ideas

Company Ticker Sector Duration
EDV

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.

TLT

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).

XLP

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

TWEET OF THE DAY

Bulls will point to Cyber Monday as saving grace to poor brick&mortar sales. They'd better be right. No room for error at these valuations.

@HedgeyeRetail

QUOTE OF THE DAY

Only those who dare to fail greatly can ever achieve greatly.

-Robert. F. Kennedy

STAT OF THE DAY

CRB Commodities Index had a -5.5% weekly loss to -9.2% year-to-date and Silver moved into crash mode, dropping -5.5% on the week to -20.4% 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 80.33%
  • SHORT SIGNALS 78.51%
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