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The Athletic Black Book

Takeaway: The Athletic Black Book. Tuesday, 12/16 at 11:00am ET.

On Tuesday, December 16, we’ll be hosting a call to review our next Black Book, which will be focused on the Athletic footwear and apparel space. Specific names include Nike, Adidas, UnderArmour, Foot Locker, Hibbett, Dick’s, and Finish Line – which collectively offer up a good mix of longs and shorts. We’ll follow up closer to the date (which is two days before when Nike will likely print it’s 2Q earnings) with a full agenda of the issues we’ll cover.


Key Topics Will Include:

  1. Nike’s innovation timeline – and why the next two years will be far different than most people think.
  2. The results of our latest consumer survey on how safe/at risk the Athletic category is relative to others vis-à-vis online cannibalization.
  3. Nike’s willingness (or lack thereof) to grow around its wholesale distribution – as it has historically protected this model at all costs.
  4. The sustainability of Nike’s revenue engine.
  5. The competitive landscape in Athletic product creation – most notably, quantifying the rise of UnderArmour and the malaise we’re seeing at Adidas.
  6. What retailers can do to play their cards right and continue to win as Nike grows.
  7. Which retailers in the US face the biggest business risk, whether through lower revenue, higher costs, or both, to compete in the new reality of Athletic retail.  


Takeaway: Looking for a positive pivot to our year long short thesis but with numbers and sentiment heading south, we're definitely not there yet

Explaining the big move lower in the HK listed Macau stocks


The HKSE-listed Macau gaming operator stocks were down big in HKSE trading today, possibly for a variety reasons. We're not sure how well circulated among the investment community, but we've just learned of a government immigration sweep taking place earlier this week in Macau. We remain negative overall on the stocks at least until Q4 and 2015 estimates are reduced dramatically.

the big move

While the Hang Seng Index fell almost 1% today, the HKSE-listed Macau gaming operators were down significantly more:

  • Wynn Macau (1128.HK) -6%
  • SJM (0880.HK) -6%
  • Macau Legend (1680.HK) -6%
  • Sands China (1928.HK) -5%
  • Galaxy (0027.HK) -5%
  • Louis XIII (0577.HK) -4%
  • Melco-Crown (6683.HK) -3%
  • MGM China (2282.HK) -2%

Immigration sweep

While there may have been multiple reasons for such a large move downward, we're most concerned with news of the immigration sweep. We haven't seen any news articles - we heard about it this am from a contact in Macau last night - so we're not sure how much it contributed to the stock move.  


Apparently, mainland Chinese immigration officials conducted an immigration sweep through Macau casinos, bars, and restaurants a few nights ago and took several thousand Chinese visitors into custody for overstaying their transit visas. These detainees where then relocated back into Mainland China.


Combined with yesterday's news of the new Transit Visa scheme, the sweep indicates that Macau/China are serious about the cleaning up Macau before the China President's visit in a few weeks.  VIPs are likely to stay away this month which could dampen GGR even more than the 20-25% YoY decline we're forecasting.


Aside from the overall drop in the Hang Seng and the immigration sweep, other factors likely impacted the HK Macau stocks overnight:

  • An Australia-based investment bank re-initiated coverage of the Macau gaming sector after the close of the HKSE on Tuesday evening, Tuesday morning New York time, with a downgrade of the sector and several operators including Sand China to underperform.
  • Yesterday morning New York time and after the close of the HKSE, we learned of additional Mainland China initiated travel crackdowns on Mainland Chinese attempting to visit Macau on 5-day transit visas - and how Mainland Chinese were being turned back on the China side when attempting to exit China with non-matching travel documents.
  • The release of the GGR detail, while in line with recently reduced expectations in the aggregate, revealed worse than expected Mass revenues and likely lower VIP volumes than expected.


And the hits just keep coming. US listed Macau stocks should be heading lower this morning and over the near-term. We're looking for a positive pivot to our almost year long short thesis but with numbers and sentiment heading south, we're definitely not there yet.


TODAY’S S&P 500 SET-UP – December 3, 2014

As we look at today's setup for the S&P 500, the range is 46 points or 1.67% downside to 2032 and 0.55% upside to 2078.                                   













  • YIELD CURVE: 1.75 from 1.76
  • VIX closed at 12.85 1 day percent change of -10.08%


MACRO DATA POINTS (Bloomberg Estimates):

  • 7am: MBA Mortgage Applications, Nov. 28 (prior -4.3%)
  • 8:15am: ADP Employment Change, Nov., est. 222k (prior 230k)
  • 8:30am: Nonfarm Productivity, 3Q final, est. 2.4% (prior 2%)
  • 9:45am: Markit US Svcs PMI, Nov. final est. 56.5 (prior 56.3)
  • 10am: ISM Non-Manf. Composite, Nov., est. 57.5 (prior 57.1)
  • 10am: Bank of Canada seen maintaining 1% overnight lending rate
  • 10:30am: DOE Energy Inventories
  • 12:30pm: Fed’s Plosser speaks in Charlotte, N.C.
  • 2pm: Federal Reserve releases Beige Book
  • 2pm: Fed’s Brainard speaks in Washington
  • 7:30pm: Fed’s Fisher speaks in Dallas



    • President Obama to address Business Roundtable Forum
    • 2:30pm: JPMorgan CEO Dimon, Exxon CEO Tillerson speak
    • 9am: U.S. Chamber of Commerce event on future of financial reporting, auditing profession, w/ PCAOB Chairman James Doty; James Schnurr, SEC chief accountant
    • 10am: House Energy and Commerce Cmte hearing on Takata airbag recalls, with testimony from Hiroshi Shimizu, Takata SVP of global quality assurance
    • 10am: Supreme Court considers arguments in case over right of pregnant workers to be temporarily given new job duties
    • 10am: Senate Environment and Public Works Cmte hearing on Nuclear Regulatory Commission’s implementation of Fukushima task force recommendations



  • Fed Officials Stress Data Over Dates as Rate Rise Case Builds
  • China Services Gauges Climb in Nov. in Support to Growth
  • Euro-Area Economy Weakens as ECB Considers Stimulus Options
  • Apple Pay Partner Stripe Valued at $3.5b in New Funding
  • Cyber Monday Online Sales Rose 17% to $2b, ComScore Says
  • Takata Poised for Clash in Congress After Rejecting U.S. Recall
  • Chrysler-Led U.S. Auto Industry Gains to 17.2m Annual Pace
  • Huntington Poised for $4b U.S. Aircraft Carrier Award in 2015
  • Prudential Financial to Take $494m Charge, Buy Back Debt
  • Sony’s Unreleased ‘Annie’ Said Pulled From Sharing Websites
  • KKR, CJ Korea, XPO Said Shortlisted for NOL Logistics Unit
  • N. Korea’s Fingerprints Said Found in Malware Crippling Sony



    • Abercrombie & Fitch (ANF) 7am, $0.41
    • Brown-Forman (BF/B) 8am, $1.04
    • Leidos (LDOS) 6am, $0.53
    • Royal Bank of Canada (RY CN) 6am, C$1.59 - Preview



    • Aeropostale (ARO) 4:01pm, ($0.45)
    • Avago Technologies (AVGO) 4:02pm, $1.70
    • Canadian Western Bank (CWB CN) 7:30pm, C$0.68
    • Guess? (GES) 4:03pm, $0.18
    • Pacific Sunwear (PSUN) 4pm, ($0.04)
    • PVH (PVH) 4:02pm, $2.48
    • Seachange (SEAC) 4:01pm, ($0.08)
    • Synopsys (SNPS) 4:05pm, $0.61



  • Brent Crude Trades Near $70 as Traders Assess OPEC Decision
  • ICE Targets Asia With Yuan, Crude Futures Set for Singapore
  • Gold Volatility Reaches 9-Month High on Oil Whipsaw: Commodities
  • Gold Climbs as Oil Gains and Physical Demand Picks Up in Asia
  • Zinc Swings as Investors Weigh Dollar Against U.S. Auto Sales
  • Citigroup Panicked Over Fraud at Chinese Ports, Mercuria Says
  • Oil Price Plunge Lends Unexpected Hand to Ailing Southern Europe
  • CME Delays Hong Kong Gold Futures Start to First Quarter of 2015
  • Palm Oil Advances for Second Day as Crude Oil, Soybeans Rebound
  • Rubber Declines as Lower Oil Reduces Costs for Synthetic Product
  • Western Canadian Energy Regulators Unite Amid Pipeline Delays
  • Cliffs Agrees to Sell West Virginia Coal Mines for $175 Million
  • White Sugar Falls to 5-Year Low After Oil’s Drop; Coffee Rises
  • Constitutional Court in Indonesia Upholds Mineral Ore Export Ban


























The Hedgeye Macro Team



















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%

Cut To Pieces

This note was originally published at 8am on November 19, 2014 for Hedgeye subscribers.

“Believe on this day that I will have been cut to pieces, and you not much later than I…”



That’s a quote from the latest leadership, strategy, and #history book I have started to read. It’s one of the Greek classics that I’ve been wanting to study for a long time – Xenophon, The Anabasis of Cyrus.


It’s been a classic year of #divergences in Global Macro risk management (Long Bond TLT +18% vs Russell 2000 flat YTD). So ending it any other way than putting myself on the front line, willing to be cut to pieces by SP500 (SPY) bulls, is right where I want to be.


The SPY is the most widely shorted equity security in US history. In all of her manifestations you’ll find hedge fund victories and defeats. While I’ve been on the “short the Russell” road for most of this year, now I’m here, saying sell it. That is #timestamped.

Cut To Pieces - Crazy bull cartoon 08.19.2014


Back to the Global Macro Grind


I’ll get to the fundamental research view in a minute (both growth and inflation slowing, at the same time), but first I will draw my price, volume, and volatility sword on this matter:


  1. PRICE – SP500 signaled immediate-term TRADE overbought yesterday with no support to 2002
  2. VOLUME – Total US Equity Market Volume was -5% and -26% vs its 1-month and YTD averages yesterday
  3. VOLATILITY – front-month VIX closed at 13.86, well above my bullish TREND line of 11.34 support


In other words, even if I was a raging bull on US growth equity fundamentals (like I was in 2009 and 2013), I’d still have signaled sell into yesterday’s no-volume-short-covering-capitulation-overbought highs.


Back to the fundamentals – here are the Top 3 things confirming our bearish view on US domestic GROWTH:


  1. US GDP growth 2.3% (we model it year-over-year, not sequentially) continues to slow from Q413’s peak
  2. US 10yr Bond Yield = 2.32%, continues to crash (-23% YTD) alongside growth expectations
  3. Russell 2000 = 1170, still -3.1% from its all-time #bubble high (July 7th) and signaling bearish TREND


And here are the Top 3 things confirming our bearish view of INFLATION expectations:


  1. Oil continues to crash this morning, -31% since June
  2. CRB Commodities Index (19 commodities) down another -0.6% to 266 is -5% YTD now and making lower-lows
  3. Both TIPS (5Y Breakeven Rate) and Fed 5Y-5Y Forward Breakeven Rates are breaking down to fresh YTD lows


Then there’s sentiment (which I could give you a hocus pocus “survey” on) or use the only one that back-tests as a legitimate contrarian indicator in my 15 years of notebooks (the II Bull/Bear Spread):


  1. Bull’s ramped to 56.4% (from 55.5%) this morning
  2. Bear’s remain at 14.9% (just off their all-time lows)
  3. Bulls minus Bears = Bull/Bear Spread of +4160 basis pts, to the bullish side!


To put that Bull/Bear Spread in context:


A)     That’s +103% from where it was when perma equity bulls were in the fetal position on October 13th

B)      That’s just inside of the all-time wide to the bullish side


#Agreed. All-time is a long time. And that’s precisely why I’m willing to be cut to pieces by anyone who wants to put their own money (not other people’s) on the naked long side of SPY, from here until I say stop.


I’d be happy to publish your bull case to all readers of the Early Look. Remember though, your cost basis is going to be yesterday’s SPX close of 2051. This is the arena of accountability. My timing may prove to be fatal, but there’s no place I’d rather be.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr yield 2.28-2.35%
SPX 2002-2055

RUT 1151-1187

Yen 115.72-117.61

WTI Oil 73.34-76.62

Gold 1130-1205


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Cut To Pieces - SPX Levels refreshed

Cartoon of the Day: Small Cap Trap?

Cartoon of the Day: Small Cap Trap? - Russell cartoon 12.02.2014


"What if all your money was in the Russell 2000 this year?" asked CEO Keith McCullough in today's Morning Newsletter. "That would suck. After doing literally nothing (flat for 4 straight weeks in November), the Russell #Bubble got pounded for a -1.7% loss yesterday, falling back to -0.9% for 2014 YTD."



Solid flow through but is it sustainable?


Virginia McDowell, CEO


Q2 Operating Results Highlights: 

  • Increase in visitation
  • 2nd quarter in uptick of retail (non-rated) customer play up nearly 6%,
  • 3% increase in rated play driven by
    • 5% increase in "A" segment customers
    • 3% increase in "C' segment customers
    • flat YoY in lowest rated segment
  • QoQ and YoY increase in market share
  • Hopeful in improving lower-end segment as an indicator of a rising tide

Eric Hausler, CFO

  • Net revenues +3%
  • EBITDA Flow through 87%, due to flat cost structure
  • Special Items:
    • $1.2 million favorable Waterloo property tax relief
    • $3.0 million Referendum 68 in Colorado
  • 10 properties higher net revenues
  • 11 properties higher EBITDA margins
  • Capex: $28-$31 million additional in remainder FY15 due to South Tower renovation at Bettendorf


Q: Colorado - how think about property positioning longer term?

  • View as positive as ISLE property is one of the first casinos on the mountain. Any increase in demand to Blackhawk area, ISLE should capture share.

Q: Consumer improvement?

  • Feel good/optimistic about improvement in upper end of data base and spend.

Q: Customers feeling better about lower gas prices?

  • Not necessarily see correlation to lower gas prices, helps sentiment.  However, unemployment rate in ISLE markets now equal to 2007/2008 - pre-recession levels.

Q: Bettendorf - future development, moving to land based?

  • Continue to look to land based opportunity, project fully scoped, could move in the spring 2015, will have an update in spring 2015 when have final plans, designs, fully-baked.

Q: Lake Charles Golden Nugget - any marketing data points around opening?

  • Lost a number of employees, because ISLE did not have a retention plan. PNK had a retention plan.  Have a marketing plan, promotions, advertising on billboards leaving Houston to Lake Charles. 

Q: Weather - November trends how impact ISLE?

  • Current trends interesting, not do anything about weather, focus on programs and marketing plans.

Q: Florida, compact renewal, gaming expansion?

  • 5 year exclusivity expires mid-2015, while complex situation, catalyst for new regulations, ISLE working with lobbyists to ensure parity of gaming regulations and tax rates.  FL legislation session begins in March.

Q: Houston - key market & Lake Charles plans?

  • New positioning, Farmers Market restaurant/buffet, new interior fixtures.

Q: Balance Sheet, Cash & Revolver?

  • Have bonds that become callable in March, will evaluate as able and continue to pay down revolver.

Q: Database & low-end improvement?

  • Seeing improvement across all properties, optimizing mail marketing, retail (unrated play) was up 5%, but lowest segment was flat.


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