Takeaway: No surprise here – GGR tracking down 30% YoY. No turn on the horizon.


While somewhat of a throw away month because of the Chinese President’s visit, the 2nd half of December actually performed very similar to the 1st half.  Daily table revenues were almost identical in both halves of the month and a down 30% month looks likely.


What can we say? The relief rally is on but the fundamentals are no better.  Street estimates are lower, and that’s the good news, but estimates are still not low enough. We would fade this rally and look to get more constructive when 2015 Street EBITDA estimates are 10-15% lower, from here, or a positive catalyst emerges.


Please see our detailed note:


Takeaway: In today's edition of the Macro Playbook, we dissect the trend in U.S. GDP growth in the context of the economic and stock market cycles.


Long Ideas/Overweight Recommendations

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

Short Ideas/Underweight Recommendations

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



Q&A On U.S. Economic Growth: Last week we got a very good question from one of our long-time subscribers regarding the slope of U.S. real GDP growth. In the prose below, we answer the question the only way we know how: with facts, figures and charts, topped off with a heaping helping of #process.


Q (client): “It seems that your view has been that the US economy has been weakening as we move through CY14, yet there is data that is pretty good (see below). No rush, but I am curious if you think the data is wrong or if there is some other way to reconcile your view and the data:


Data earlier this week from the Bureau of Economic Analysis (BEA) showed the economy grew 5% last quarter. Excluding the weather-related -2.1% plunge in Q1; real GDP growth has averaged 4.4% over four out of the last five quarters. More importantly, the latest spending data point to another strong quarter of output growth as real consumer spending in November was up 5.2% annualized relative to its Q3 average.”


A (us): The ultra-bullish summary you highlighted below is indeed accurate with respect to the headline GDP growth rate, which is reported on a QoQ SAAR basis. We instead focus on the YoY growth rates for three reasons:


  1. Easier to model using base effects and high-frequency economic data
  2. Akin to microeconomic analysis in the sense that fundamental analysis tends to focus on YoY growth rates, not sequential growth rates
  3. More indicative of the underlying trend in the sense that sequential rates may deviate (often substantially) from the trend; for example, neither the -2.1% QoQ SAAR growth rate recorded in 1Q14 nor the +5.0% QoQ SAAR growth rate recorded in 3Q14 are anywhere in the area code of the +2.3% YoY growth rate the economy is actually tracking at for CY14


In the table below, we contrast the headline QoQ SAAR growth rate (1st row) with the YoY growth rate (2nd row). What you should note are two things:


  1. As highlighted above, there’s not a tight relationship between the QoQ SAAR figures and the YoY figures.
  2. With the advent of the final [positive] revision to 3Q14 real GDP, growth has now been accelerating for two consecutive quarters on a YoY basis. Recall that the penultimate revision showed growth actually slowing -20bps to +2.4% YoY in 3Q14. Very rarely is a revision to GDP material enough to move the U.S. economy from one quadrant to another in our GIP chart, but that’s what happened with this latest revision (i.e. from #Quad4 to ever-so-slightly in #Quad1).




CLICK HERE to review our latest summary of the broad preponderance of key high-frequency economic data. At best, the picture is mixed, but the [long-awaited] uptick in consumption growth in November is something to monitor to the extent it develops into a sustained trend of accelerating growth – especially in the context of very positive labor market trends and broad-based disinflationary tailwinds.


Obviously labor market strength is late-cycle by nature, though it could be strongly argued that we’re a full ~18 months away from a U.S. recession per the trend in jobless claims. Specifically, a recession has ensued an average of 19 months after the rolling 6-month average in initial jobless claims hit 300k for each of the last three economic cycles.




1.5 years would appear to be a very long time for any growth bear to risk manage this raging U.S. equity bull market, as the current level of deterioration at the single stock level is dramatically shy of what is typically seen at major peaks in the stock market.




All told, with both domestic small-caps (IWM) and regional banks (KRE) representing two of our top-five global macro SHORT ideas, we remain defensively postured with respect to our preferred U.S. equity market exposures on the LONG side (i.e. healthcare, staples, REITs and utilities). Our internal discussions continue to center around the market pricing in a potential move from #Quad4 to #Quad1 domestically – a move that would undoubtedly warrant a reconfiguration of our thematic investment conclusions as listed above. Stay tuned for our Q1 macro themes call.


***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.


Does Your View on Rates Include the Risk of a “Reflexive Deflationary Spiral”? (12/19)


#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.


Moscow, We Have a Problem (12/16)


#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: “Hedge Fund Hotel” Edition (Part II) (12/8)


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 – keeping in mind that we have equal conviction in each security from an intermediate-term absolute return perspective.

LEISURE LETTER (12/29/2014)

Tickers:  WYNN, CCL


WYNN – Steve Wynn previews the recently revised plans for Wynn Everett including redesigned curved hotel reminiscent of Wynn Las Vegas and Encore, increased planned rooms from 500 to 630, an oversized lobby overlooking the Mystic River as well as porte-cochère and casino featuring 150 table games and a raised poker floor. 

Article HERE


CCL – Up to $100 onboard credit per cabin and two category upgrades lead Carnival Cruise Lines ‘Real Deal’ campaign for the peak wave booking period. The offers apply to bookings from December 26 until January 31 and cover cruises until August 31. The deals are available on three to eight-day cruises, with itineraries including the western Caribbean, Nassau, Bahamas, eastern Caribbean, and exotic Caribbean.

Article HERE

Takeaway:  Carnival brand's Wave 2015 promotion for the Caribbean is in effect. 


Macau November Visitation – Visitor arrivals in November increased by 15% YoY to 2,802,373. Visitors from Mainland China surged by 28% YoY to 1,975,951, coming primarily from Guangdong Province (898,373) and Fujian Province (78,196). The number of mainland visitors travelling under the Individual Visit Scheme also soared by 35% to 940,056. Meanwhile, visitors from South Korea increased by 8% to 41,592, while those from Hong Kong (508,122) and Taiwan (69,625) decreased by 3% and 19% respectively. The average length of visitors’ stays decreased by 0.1 day year-on-year to 0.9 day in November. Overnight and same-day visitors recorded an average stay of 1.9 days and 0.2 day respectively.

Article HERE

Takeaway: Visitation remains strong despite mass revenue slump


VIP Gamblers Must Have Not Have Criminal Records – The Gaming Inspection and Coordination Bureau has told VIP gaming promoters that they must certify that their clients have no criminal record before giving them accounts, Business Daily reports. The newspaper quotes unidentified sources in the gaming business as saying that a notice circulated by the bureau on December 19 says the rule comes into force on January 1.

Article HERE

Takeaway: A further crackdown on potential criminal activity and the potential related money laundering.


Macau Secretary Appointment Questioned – Several lawmakers have asked the government to explain the decision to appoint the former deputy director of the Land, Public Works and Transport Bureau (DSSOPT) Li Canfeng as the new director of the bureau. The lawmaker said that society is uncertain about the appointment of Li because of the way he testified during the trial of his former superior, the disgraced Secretary for Transport and Public Works Ao Man Long. During the court hearings of the Au Man Long case in 2007, Li had responded to multiple questions with “I can’t remember” and “I have no recollection”, which had drawn criticisms from the judge. He left the government in 2008. Moreover, the lawmaker criticized the public relation skills of the new Secretary for Transport and Public Works, Raimundo Rosário, describing the way he responded to the media regarding Li’s appointment as inappropriate.

Article HERE


Macau Chief Executive Reiterates Need for Economic Diversification – Macau Chief Executive Fernando Chui Sai On said he expects the weight of the casino industry in the city’s economy to be gradually reduced. He added that pushing economic diversification away from gaming would be one of the priorities for his new term. Mr Chui was in Beijing on Saturday, after his annual duty visit to President Xi Jinping and Premier Li Keqiang to report to on the development of Macau in the past 12 months.

Article HERE

Takeaway: What a coincidence - the Macau and Chinese governments are on the same page.  


Casino Workers Encouraged to Take Unpaid Leave – The city’s casino workers’ union, Forefront of Macau Gaming, said beginning in November some of its members were advised that unpaid leave was encouraged amongst gaming table workers – namely, croupiers, supervisors and pit managers..

Article HERE

Takeaway: Both MPEL and MGM China are discussed as offering workers the opportunity to take leave without pay.


Louis Vitton Belt Become Focus of Extravagance – Li Jianguo, general manager of the state-owned Rucheng County water and electricity company, is placed under judicial investigation after a photo of him wearing a Louis Vuitton belt went viral on social media in China.

Article HERE

Takeaway: China's social media web-site Weibo is frequently used to "out" citizens who participate in policies deemed non-compliant with the Communist Party of China. 


Former Vice Mayor of Shenzhen Sentenced – A former vice mayor of south China's business hub Shenzhen, Liang Daoxing, has been sentenced to ten years in prison for corruption. The sentence was passed on Nov. 19 by the Intermediate People's Court of Zhaoqing city, but the announcement was stalled until Liang decided if he would choose to appeal. He did not appeal. Liang, who was vice mayor of Shenzhen City from 2002 to early 2009, was found guilty of accepting bribes of 1.95 million yuan (318,000 U.S. dollars), 1.78 million HK dollars (about 230,000 U.S. dollars) and 5,000 U.S. dollars, in return for "benefits" for others.

Article HERE

Takeaway: Another big tiger caged during corruption enforcement actions.


Hong Kong Resident Contracted H7N9 – A 68-year-old woman from Hong Kong has been infected with the H7N9 virus. She is currently in a critical condition, having been admitted to the intensive care unit. The patient had visited friends in Shenzhen, accompanied by two other people. She came back the same day to Hong Kong and told authorities she had not visited any market in Shenzhen, nor did she have contact with live poultry

Article HERE


Straub Seeks Revel Discount – Lawyers for Glenn Straub said in a court filing the property should be sold for $87 million, not the $95.4 million runner-up bid his Polo North Country Club put in at auction. A judge is scheduled to consider Revel's request to sell the casino to Straub on Jan. 5. Straub says in the filing that he believes the auction was unfair because his side wasn't properly notified of the other bidder. He said he wouldn't have bid more than his original $90 million "stalking horse" bid that set the floor price for the auction if he knew about what he described as "significant and numerous improprieties" in the bidding process.

Article HERE

Takeaway: The story of real estate, all buyers want a lower price - the presiding Judge now faces a prisoner's dilemma, risk losing the sale or push Straub for his last offer price. 


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.  

the macro show

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Hosted by Hedgeye CEO Keith McCullough at 9:00am ET, this special online broadcast offers smart investors and traders of all stripes the sharpest insights and clearest market analysis available on Wall Street.

Commodities Weekly Sentiment Tracker

Note: Using the z-score in the tables below as a coefficient of variation for standard error helps us flag the relative market positioning of the commodities in the CRB Index. It is not intended as a predictive signal for the reversion to trailing twelve month historical averages. For week-end price data, please refer to “Commodities: Weekly Quant” published at the end of the previous week. Feel free to ping us for additional color.    




1.       CFTC Net Futures and Options Positioning CRB Index: The Commodities Futures Trading Commission (CFTC) releases “Commitments of Traders Reports” at 3:30 p.m. Eastern Time on Friday. The release usually includes data from the previous Tuesday (Net Positions as of Tuesday Close), and includes the net positions of “non-commercial” futures and options participants. A “Non-Commercial” market participant is defined as a “speculator.” We observe the weekly marginal changes in the overall positioning of “non-commercial” futures and options positions to assess the directionally-biased capitulation risk among those with large, speculative positions.


**NOTE** Due to the shortened holiday week last week, the data below represents positioning reported by the CFTC on Friday, December 19th (reflecting data through Tuesday, December 16th)

  • The COTTON, WHEAT, AND ORANGE JUICE markets experienced the most BULLISH relative positioning changes week-over-week
  • The SUGAR, LEAN HOGS, AND SILVER markets experienced the most BEARISH relative positioning changes week-over-week

Commodities Weekly Sentiment Tracker - chart1 sentiment


2.       Spot – Second Month Basis Differential: Measures the market expectation for forward looking prices in the near-term.

  • The LEAN HOGS, SUGAR, AND CORN markets are positioned for HIGHER PRICES near-term
  • The HEATING OIL, LIVE CATTLE, AND COCOA markets are positioned for LOWER PRICES near-term

Commodities Weekly Sentiment Tracker - chart2 spot 2nd month basis


3.       Spot – 1 Year Basis Differential: Measures the market expectation for forward-looking prices between spot and the respective contract expiring 1-year later.

  • The NATURAL GAS, BRENT CRUDE, AND SUGAR markets are positioned for HIGHER PRICES in 1-year  
  • The LEAN HOGS, LIVE CATTLE, AND COCOA markets are positioned for LOWER PRICES in 1-year  

Commodities Weekly Sentiment Tracker - chart3 spot 1yr basis


4.       Open Interest: Aggregate open interest measures the amount of opened positions in all actively traded futures contract months. Open interest can be thought of as “naked” or “directionally-biased” contracts as opposed to hedgers scalping and providing liquidity. Most of the open interest is created from large speculators or participants who are either: 1) Producers/sellers of the physical commodity hedging their cash market exposure or 2) Large speculators who are directionally-biased on price.


Commodities Weekly Sentiment Tracker - chart4 open interest


Ben Ryan


Monday Mashup: 'Tis the Season

Monday Mashup: 'Tis the Season - 1


Recent Notes

12/22/14 Monday Mashup: BOBE, RT and More

12/23/14 Industry-Wide Comp Outlook (2015)

12/23/14 Statement Analysis (Replay)


Events This Week



Chart of the Day

Gasoline prices are down -31.2% YTD and -30.9% YoY.


Monday Mashup: 'Tis the Season - 2


Recent News Flow

Monday, December 22nd

  • BLMN appointed MediaVest as its lead media agency following a review.

Tuesday, December 23rd

  • PNRA EVP Scott. G Davis announced he will not return to the company following his previously announced sabbatical for personal reasons.  Mr. Davis has played an instrumental role in "the ongoing evolution of the Panera Bread [bakery-café] concept" and had the sourcing, quality assurance, contract manufacturing and logistic teams reporting to him.


Sector Performance

The XLY (+1.8%) outperformed the SPX (+1.3%) as both casual dining and quick service stocks, in aggregate, underperformed the XLY.


Monday Mashup: 'Tis the Season - 3

Monday Mashup: 'Tis the Season - 4


XLY Quantitative Setup

The XLY continues to be bullish on an intermediate-term TREND duration.


Monday Mashup: 'Tis the Season - 5


Casual Dining Restaurants

Monday Mashup: 'Tis the Season - 6

Monday Mashup: 'Tis the Season - 7


Quick Service Restaurants

Monday Mashup: 'Tis the Season - 8

Monday Mashup: 'Tis the Season - 9

#Deflation = A Big Risk

Client Talking Points


The Greek stock market continues to crash (-10% this am to -34% year-to-date) but the more interesting breakdowns @Hedgeye TREND resistance are those in Italy’s MIB and Spain’s IBEX – don’t forget who #deflation hurts the most, #debtors (hence why central planning policies will do anything to try to avoid deflation).


Best Big Macro, low-volatility, liquid long position to have on if you agree with us on global #GrowthSlowing and #Deflation is the Long Bond (TLT, EDV, etc.) but you have to be there on the pullbacks like you had last week. The UST 10YR Yield is -4bps to 2.21% this am with no support to 2.05%.


All small/mid cap bulls had to do was be long the Russell for 2 of the last 3 weeks of the year (+5.4% in the last 2 weeks on decelerating volume) and they killed it! (after the 1st week of DEC, Russell was down year-to-date); no short position in Real Time Alerts as higher-highs are bullish until they aren’t, so we are waiting/watching.

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


OIL: trying to "bounce" (again) +1% but treading #deflation's water at $55.28 within a 54.01-57.43 risk range



The drops of rain make a hole in the stone not by violence but by oft falling.



Four days after its release on December 24th, The Interview has become Sony's most-downloaded title of all time. It was downloaded more than two million times as of December 27th, making back a third of its $44m budget.