Takeaway: In today's edition of the Macro Playbook, we revisit our bearish bias on the Japanese yen and bullish bias on Japanese equities.


Long Ideas/Overweight Recommendations

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

Short Ideas/Underweight Recommendations

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



Revisiting Our Thoughts on Japan: In yesterday’s edition of the Macro Playbook, we updated our bearish thesis on emerging markets (CLICK HERE to review). The long and short of it was that we continue to anticipate considerable downside for EM asset prices over the intermediate term.


In that note, we also took a victory lap of sorts, as EM asset prices have been in some version of free-fall since we introduced the bearish thesis back in late September.


Don’t short them down here, though! With the U.S. Dollar Index, the VIX and long-term Treasury bonds nearing immediate-term TRADE overbought, we think EM asset prices are likely to experience another low-volume bear market bounce in the coming days. We still believe the directional trend remains lower with respect to the intermediate term, however.








In the spirit of accountability, let us turn our attention to a call that has not worked out as well thus far – specifically our bearish bias on the Japanese yen (FXY) and bullish bias on Japanese equities (DXJ).


Since we re-introduced the thesis back on 12/15, the FXY has moved +68bps against us, contributing to a -1019bps decline in the DXJ.




The latter move is not at all surprising in the context of the crowded net LONG lean in non-commercial yen-denominated futures and options contracts. Recall that immediate-term counter-trend rallies tend to be epic once the net length approaches/exceeds 2 SIGMA in either direction.




The recent correction in Japanese equities and the dollar/yen cross has likely wiped out a healthy degree of LONG positions (we’ll get confirming data this Friday afternoon) in Japanese equities, so we’d expect them to bounce through this week and next.


Beyond that, we still need to see Abenomics continue to deliver the bacon on reform and monetary base expansion for the Nikkei 225 to approach the ~18% upside from today’s closing prices by year-end 2015 expected by consensus among Japanese money managers. Recall that we anticipate ~50% upside from today’s closing prices if the USD/JPY tests its August ’98 highs over the intermediate-to-long term.


These policy catalysts will be instrumental in perpetuating foreign inflows into Japanese equities, at the margins, and we think such capital flows will be instrumental in perpetuating a rally in the Nikkei.


On that note, with the exception of a few weeks in/around the BoJ’s surprise QQE expansion net foreign inflows into Japanese equities were negative in 2014. Recall that this is coming off a monster year in 2013 when net foreign inflows of ~$132.5B perpetuated a +56.7% melt-up in the Nikkei. 2014’s paltry net inflows of $23.1B perpetuated a commensurately paltry +7.1% advance in the Nikkei in 2014. We think 2015 is likely to resemble 2013 when it’s all said and done.


THE HEDGEYE MACRO PLAYBOOK - Net Foreign Inflows into Japanese Equities


All told, the next few weeks will be critical in testing our conviction in our thesis on Japan. Stay tuned for further commentary.


***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.


Captain Obvious: December ISM (1/6)


#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.


Grexit? Not So Fast (1/6)


#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 (01/07/2015)

Tickers: BYD, WYNN, HST, CCL


  • Jan 7-9: CES Las Vegas


Macau Smoking Ban in Bars, Night Clubs and Other Venues – A smoking ban in bars, nightclubs, saunas and massage parlors came into force as the New Year began. Offenders are required to pay a MOP400 fine. There are currently 50 tobacco control inspectors. The office said that 40 new inspectors will join the team in the beginning of this year. 

Article HERE

Takeaway: We could see a full-casino smoking ban at some point. At the very least, more retail/entertainment areas will prohibit smoking. 


BYD – announced two new slots promotions - Boyd Bonus Slots Tournaments running on Tuesdays as well as a new Penny Lane January Bonus Spin slots promotion, running from January 1 through January 31, 2015 at seven properties including: The Orleans, Gold Coast, Suncoast, Sam’s Town, Main Street Station, California and Fremont.

Article HERE and HERE

Takeaway: Boyd rolling out some new slot promotions in the Locals area. Locals revenues have been flat Q4 to date.


WYNN – Boston City Hall has filed a lawsuit to block the Massachusetts Gaming Commission from naming Boston’s neighboring city of Everett as the host community for a proposed US$1.6 billion casino resort from Wynn Resorts Ltd. Boston’s Mayor Martin J. Walsh is arguing Boston residents should get to vote on the project because they will bear the burden of the environmental impact and traffic congestion.

Article HERE

Takeaway: Mayor Walsh fighting the perpetual battle in opposition to Wynn and its proposed casino. What will be the payoff?


HST – announced today that The Powell Hotel in San Francisco will be converted to a new independent identity and renamed the Axiom Hotel. The Company acquired the hotel in early 2014 with the intent to transform the hotel and has selected Kokua Hospitality as the operator.

Article HERE

Takeaway: Given the significantly slower city-wide convention schedule this year in San Francisco, due to the multi-year $500 million renovation of the Moscone Convention Center, the Power/Axiom Hotel closure and renovation timing makes sense. 


MSC Cruises –  MSC Cruises is celebrating Wave Season by adding perks including up to $200 in shipboard credits, beverage packages  and reduced deposits to its Inclusive Experiences’ categories.  MSC’s Wave Season promotion applies to select Caribbean, Bermuda, Europe, Canary Islands, and Transatlantic Grand Voyage sailings that are 5 days or longer and booked between Jan. 1, 2015 and Feb. 15, 2015.


As an extra thank you to its valuable travel agent partners, MSC is kicking off Wave Season by extending its offer of 18% flat commission for all 2015/2016 Caribbean Group Bookings on MSC Divina to Jan. 31, 2015.

Article HERE

Takeaway: MSC has been so promotional in 2014, their Wave offer isn't a game changer. MSC continues to be aggressive in doling out high agent commissions as well. 


CCL – A suspected case of Norovirus has broken out on P&O’s newly refurbished Aurora, TTG has learned. The ship was the first in the fleet to be given a new livery design and only arrived back in the UK last month, following its £32 million refit. It is currently sailing a four-night voyage, which left Southampton on January 4.  

Takeaway: It's hard to understand norovirus happening right after an extensive refit. Bad luck or bad planning for P&O.


CCL – Carnival Miracle will join its sister ships in having a whole array of upgrades and 'Fun Ship 2.0' features following a two-week-long dry dock in March (March 7-21)

Article HERE


Macau MICE Industry Calls For Special Visas – The Macau Convention and Exhibition Association is asking the government to consider giving business visitors multiple-entry visas that are valid for one year,

Article HERE


Macau Immigration Blacklist Confirmed – Over the past week, several persons were denied entry into Macau because they were evaluated by the Macau Government "as a threat to the internal security and stability of Macau".  The barred persons included Hong Kong lawmaker Emily Lau Wai-hing, a member of the Hong Kong Legislative Council and the chairwoman of Hong Kong's Democratic Party, and Shih Shu-hua, a Taiwanese Dentist who participated in Taiwan’s Sunflower Movement as a medical volunteer and made a speech in October during his visit to Hong Kong in support of the Occupy Movement.

Article HERE and HERE

Takeaway: Besides VIP gamblers needing clean criminal and backgrounds, it now appears all visitors to Macau must have a clean background - regardless of their reason and purpose of visit to Macau.


Macau International Airport Traffic Increased in 2014 – During 2014, MIA carried over 5,480,000 passengers and 53,000 aircraft movements, recording an increase of 9% and 7% respectively compared to 2013.

Article HERE

Takeaway: Strong growth in aircraft movements and passenger traffic but neither are translating into higher gaming revenue.  Should be good long term.


Hengqin Island Development "An Order" – A Macau government adviser said that Beijing changed its call to action from just suggesting a call to develop non-gambling ventures in Hengqin to that of “an order.”

Article HERE

Takeaway: When considered in the context of President Xi's visit to both Macau and Hengqin Island as well as the continued gaming revenue slowdown, the new "order" supports Macau's long-term economic diversification plans.  Hengqin Island's master development plan can be viewed here.


Chinese Provincial Corruption Crackdown – Three officials in central China's Hubei Province have been removed from both their government posts and the Communist Party of China. Former party chief of the Ezhou municipal legislature Tu Weifa, former party chief of the Huangshi municipal legislature Zhu Zhonghua and Yu Hongxing, former deputy party chief of the Jingzhou municipal political advisory body, are suspected of serious disciplinary violations, according to the Hubei provincial commission for disciplinary inspection. Preliminary investigations found that the three abused their power to seek profits for others and took bribes. 

Article HERE

Takeaway: More "tigers" indicted for corruption and taking bribes - no end in sight for the continued enforcement actions.


AirAsia – Three more weekly flights operated by Indonesia AirAsia to Singapore have been cancelled amid an official probe by the Indonesian authorities into the airline's flying permits.  With immediate effect, QZ367 from Bandung to Singapore will not fly on Tuesdays, Thursdays and Saturdays

Article HERE

Takeaway:  Could impede the recent improvement in visitation to Singapore


Florida Lottery – Sales ( (June-Dec 2014) are up more than 8% over the same period and are on track to meet, if not exceed, fiscal 2015's sales goal of $5.3 billion.

Article HERE

Takeaway: Florida Lottery has been an outperformer in 2014


Global Lottery Sales Increase 10.1% for Q1–Q3 2014 – When comparing sales results for the first nine months of 2014 on a year-over-year basis, Latin American lotteries posted an aggregate increase in sales of 22.4%, including Argentina’s Lotería Nacional Sociedad del Estado with a sales +26.8% and Brazil’s Caixa Econômica Federal +17.1%. Participating lotteries from the Asia Pacific region registered an increase in sales of 17.8% with growth fueled by the China Sports Lottery reporting a sales increase +33.8%.  Australia’s Lotterywest, increased sales by 5.2%. Participating lotteries from Africa increased aggregate sales by 5.2% while European lotteries increased sales by +4.2%, with Hungary’s Szerencsejáték Zrt., sales growth of +25.2%, the Greek national lottery increased sales by +12.9%, and sales at the Czech Republic’s SAZKA, a.s. rose +9.3%. Despite the improving U.S. economy, lottery sales in the North American region were flat for the first three-quarters of 2014.

Article HERE


Bahamas Hotel Tax Adjusted – The Bahamas Ministry of Finance in conjunction with the Ministry of Tourism repealed the 10% hotel tax and replaced it with a 7.5% value added tax. The VAT will be charged on hotels and home rentals as well as services purchased by guests.

Article HERE


U.S. Affiliated Hotels in Indonesia On Alert – The U.S. Embassy has been made aware of a potential threat against US-associated hotels and banks in Surabaya, Indonesia. The U.S. Embassy recommends heightened vigilance and awareness of one’s surroundings when visiting such facilities.

Article HERE


American Express Wave Sale – Until Feb. 28 the sale will offer savings, upgrades and free amenities for 19 participating cruise lines, including Celebrity, Princess and Royal Caribbean.


According to a recent survey of more than 200 American Express Travel counselors throughout the US, Canada and Mexico, 56% said river cruising will be a top trend in 2015, followed by 37% who see more small ship cruising.

Travel counselors reported an increase in requests for river cruises in Europe, Southeast Asia and Africa. Counselors also noted customers are seeking intimate experiences on smaller ships.

Article HERE

Takeaway:  River cruising is becoming a competitor to the sea liners.


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.  

January 7, 2015

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#GlobalSlowing Does Matter

Client Talking Points


As we roll into our Q1 Macro Themes Call (tomorrow), a friendly reminder that #EuropeSlowing was the call we continued to make as a Q4 theme, simply because we didn’t think what Draghi’s done so far would work for either European stocks or the economy - #deflation accelerates this morning with Eurozone CPI -0.2% year-over-year DEC vs. +0.3% NOV.


A tasty move for the #GrowthSlowing + #Deflation trade/investment (TLT), indeed. Big oversold signal in yield terms in the last 24 hours of trading with the UST 10YR at 1.94% this morning. The risk range is blown out to 1.87-2.14%, for now – Fed Minutes today are a lagging indicator (on lagging data, so probably hawkish); jobs slowing is the next problem (think Texas).

S&P 500

The S&P 500 (SPY) is pinned under @Hedgeye TREND line of 2018, so it gets really interesting from here (especially if they bounce them again in the am and fail again heading into the jobs report). The risk range of 1983-2046 continues to widen as implied volatility continues to heighten. Do up your chinstraps – this is going to be fun.

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

The Vanguard Extended Duration Treasury (EDV) is an extended duration ETF (20-30yr). As our declining rates thesis proved out and picked up steam over the course of the year, we see this trend continuing into Q1.  Short of a Fed rate hike, there’s no force out there with the oomph to reverse this trend, particularly with global growth decelerating and disinflationary trends pushing capital flows into the one remaining unbreakable piggy bank, which is the U.S. Treasury debt market.


As growth and inflation expectations continue to slow, stay with low-volatility Long Bonds (TLT). We believe the TLT has plenty of room to run. We strongly believe the dynamics in the currency market are likely contribute to a “reflexive deflationary spiral” whereby continued global macro asset price deflation and reported disinflation both contribute to rising investor demand for long-term Treasuries, at the margins.


Hologic (HOLX) is a name our Healthcare Sector Head Tom Tobin has been closing monitoring for awhile. In what Tom calls his 3D TOMO Tracker Update (Institutional Research product) of U.S. facilities currently offering 3D Tomosynthesis, month-to-date December placements signaled a break-out quarter after a sharp acceleration in October and slight correction to a still very high rate in November. We believe we are seeing a sustained acceleration in placements that will likely drive upside to Breast Health throughout FY2015. Tom’s estimates are materially ahead of the Street, but importantly this upward trend in Breast Health should lead not only to earnings upside, but also multiple expansion and a significant move in the stock price.

Three for the Road


Italy's youth unemployment rate 43.9% Nov. Who is going to produce for the 65+ population?



In great attempts it is glorious even to fail.

-Vince Lombardi


Despite numerous bailouts (public and private) since the sovereign ‘crisis’ began in 2010, the public debt load in Greece remains a monster €317 billion (~ $386.7 billion) or about 175% of Greek GDP. 

CHART OF THE DAY: Consensus Macro Memes


CHART OF THE DAY: Consensus Macro Memes - 01.07.15 chart

Consensus Macro Memes

“Memes propagate themselves in the meme pool.”

-Richard Dawkins


Born in Nairobi, Kenya, 73 year old Richard Dawkins is a well known evolutionary biologist who wrote The Selfish Gene in 1976. He developed a gene-centered view of evolution and has plenty of interesting writings on one of my main market focuses, #behavior.


“Examples of memes are tunes, ideas, catch phrases, clothes, fashions … leaping from brain to brain via a process, in the broad sense, can be called imitation.” –Dawkins (The Medici Effect, pg 17)


Do Global Macro Themes propagate themselves into consensus narratives? You bet your Madoff they do. But timing them matters. You really get paid by front-running them by 3-6 months. “So” (good #OldWall meme word right now), let’s keep trying to do that.


Consensus Macro Memes - 1.7 book


Back to the Global Macro Grind


For anyone with an objective (Bayesian) research process of analyzing the prior in order to probability weight the next posterior, the fundamental trends of global #GrowthSlowing and #Deflation have been plainly obvious for the last 3-6 months.


To be fair, you didn’t have to call the top in big things like long-term bond yields (12 months ago) or other major macro things like Oil, the Euro, and the CRB Commodities Index (6 months ago) to protect your client moneys against these major macro risks.


In the last 3 months however, you’ve had multiple opportunities to sell your Emerging Markets, High Yield/Junk Bonds, Energy stocks, etc. – even in the major US equity meme chasing indices, you had fantastic selling opportunities at the:


  1. Late SEP top
  2. Late NOV top
  3. Late DEC top


As always, market performance propagates consensus macro memes, so I highly doubt you get another lay-up JAN high to sell into like you had in SEP, NOV, and DEC… but doubt is where the short-squeezes are born, “so” I try to never say never!


At 1.94% on the US 10yr Treasury Yield this morning, most American mainstream financial “news” memes are picking up on the simple reality that the US A) is not a “closed” economy B) US economic data slowed in December and C) #deflation is a risk to the jobs market.


Amidst the epic storytelling of why the “market was up” on December 29th, there’s one big thing the perma-growth and inflation bulls have left - the ongoing “booming 5% economy with wage growth and capex cycles” meme that is about to appear like a castle in the air…


“So” what if the data goes something like this for the next month instead?


  1. US Jobless Claims Rise (think Texas, the Dakotas, etc)
  2. Late-cycle indicators (like inflation and employment) both slow, at the same time
  3. Q414 GDP slows to 2% (or less)


Since the politicized, and to some extent ignorant, description of US GDP Growth is a sequential (not an annualized, year-over-year rate of change) number, that doesn’t mean that come February that headline-meme-news won’t be that US GDP in 2014 was actually closer to 2% year-over-year than 3, 4 or 5%.


Then the Consensus Macro Meme might just get why a 10yr bond yield of around 2% reflects an economy whose rate of year-over-year change was tracking in line with 2% (or lower). If real year-over-year GDP was accelerating > 3%, I think the 10yr yield would too (that was our call in 2013 though, when we wanted you to buy every dip in US stocks and short the Long bond, TLT).


Front-running predictable #behavior in both mainstream newsflow and macro market reactions by central planners is not easy, but we have proven that it is doable. Humor me for another minute and tell me what the US Federal Reserve does if the following three face cards show up in the flop:


  1. #Deflation (as in collapsing oil, commodities, breakevens, headline CPI, etc.)
  2. Slowing monthly (December and January data) and slowing Q414 GDP
  3. Rising jobless claims and risks to the labor market


Alex, I’ll take “what is pushing out the dots?” on a June rate hike for my entire asset allocation. And the 10yr yield goes lower on that. TLT Tizzle. Yep.


I’ll outline our scenario analysis on our Q1 Macro Themes Conference Call tomorrow (ping if you’d like access). Probability weighing phase transitions in macro consensus memes – that’s my job. That’s also risk management.


Our immediate-term Global Macro Risk Ranges (I publish 12 of these with our intermediate-term TREND view in our Daily Trading Range product) are now:


UST 10yr Yield 1.87-2.14%


VIX 16.99-21.96

EUR/USD 1.18-1.20

YEN 118.26-121.01

Oil (WTI) 45.42-53.22


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Consensus Macro Memes - 01.07.15 chart

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