Shadow Boxing

This note was originally published at 8am on December 26, 2014 for Hedgeye subscribers.

“I’ve seen George Foreman shadow boxing, and the shadow won.”

-Muhammad Ali


Traditionally observed by Commonwealth Nations like my homeland, today is Boxing Day.


Much to Muhhamad Ali’s chagrin, today has nothing to do with him beating up on Foreman or Frazier. It used to be the day when British servants received gifts from their overlords in a “Christmas Box.”


Now, barring any central plan you might receive from upon high, it’s just another day off for Canadians to drink beers and watch the World Junior Hockey tournament (which is being held in Toronto and Montreal this year).


Shadow Boxing - a5


Back to the Global Macro Grind…


Although its economy is getting speed-bagged, Japan doesn’t do Boxing Day. That said, their bureaucrats love central planning. In a holiday message to the people he is plundering via currency debasement, this is what the Prime Minister, Shinzo Abe, had to say:


“I want companies with high profits that are benefiting from the weak yen to raise wages, investment, and on top of that, consider the prices they pay their suppliers…”


Isn’t that just great – thanks for the pep talk, Shinzo.


In other news, the people of Japan don’t want to do what Abe is telling them to do. Not to be confused with the Policy To Inflate the Weimar Nikkei’s last price, here’s what’s cooking in Japan, economically:


1. As the Yen burns, Japanese Consumer Prices (CPI) are +2.7% year-over-year

2. But Japanese Household Spending (in Burning Yen Terms) is down -2.5% year-over-year

3. And the Savings Rate of the Japanese people just went negative alongside real wage growth


I know, this is all progressing so very well…


But as long as the Nikkei (which, by the way, we’ve been suggesting you be long, while short Yens vs USD) is up, the financial media that panders to central-planning-access is going to tell you that this Abenomics thing could actually work.


In other Global Macro news, other than getting to play Denmark in the 1st round of the 2015 IIHF World Junior Hockey Championship today, things for Russia still suck.


Despite “bouncing” off its lows, the Russian Trading System Index is:


1. Down -38.4% for 2014 YTD

2. And would only have to be +63% (from here) to get whoever “allocated assets” to it a year ago back to breakeven

3. With an immediate-term risk range of 642-875


In other words, with the RTSI (Russian Stock Market) currently trading at 847:


1. It has immediate-term upside of +3%

2. And immediate-term downside of -24%




And so is worldwide #GrowthSlowing + #deflation risk, right? Maybe if you’re shadow boxing USA style with year-end performance chasing, or something like that. But I wouldn’t confuse that with trending global macroeconomic gravity.


Our immediate-term Global Macro Risk Ranges are now (I’ve added the our intermediate-term TREND view in brackets – you can get our Top 12 macro ranges and TREND views in our Daily Trading Range product):


UST 10yr 2.03-2.30% (bearish = bullish Long Bond)

SPX 1956-2110 (bullish)

RUT 1125-1220 (neutral)

Nikkei 17261-17995 (bullish)

VIX 12.95-24.11 (bullish)

USD 89.26-90.89 (bullish)

EUR/USD 1.21-1.23 (bearish)

YEN 118.23-121.11 (bearish)

Oil (WTI) 54.08-57.99 (bearish)

Nat Gas 2.91-3.47 (bearish)

Gold 1161-1197 (bearish)

Copper 2.83-2.93 (bearish)


Happy Holidays – best of luck and health to you and your families,



Keith R. McCullough

Chief Executive Officer


Shadow Boxing - EL 12.26.14

Gabelli Unplugged: Finding Hidden Value, Secrets to Long-Term Success and Why the Knicks Will Win


Billionaire value investor Mario Gabelli of Gamco Investors sat down with Hedgeye CEO Keith McCullough in a granular, wide-ranging “Real Conversations” interview to discuss his investment strategy, process and where he sees opportunity right now.


1:51 The Evolution of Gabelli’s Daily Process
3:18 How Do You Look For Value?
4:43 Gabelli’s Simple Approach (we think long-term and function daily)
6:20 Gabelli: We Don’t Do Commodities
8:04 Gabelli: We Had to Go Global
9:15 New Dynamic for Media Companies
11:50 The Knicks and The Rangers are Terrific Content
13:33 Gabelli: Money is Money
14:20 Asset Value of Professional Sports Teams
15:36 Steve Ballmer Buying the Clippers…Not So Nuts?
17:45 How Do You Find Value in a Stock Market that Won’t Go Down?
19:32 Looking At Companies With Wacky Revenue Multiples
21:05 Gabelli: Value Goes Out of Cycle
21:40 Don’t Confuse Bull Markets With Brains


Takeaway: Came away from cruise management meetings less optimistic on CCL despite the fuel tailwind



This week, we met with RCL, CCL, and NCLH managements in Miami. The tone was quite varied among the 3 companies with CCL the most cautious and NCLH the most optimistic. All operators were quite bullish on the long-term outlook for the industry.  Falling fuel costs are a major tailwind in 2015 for CCL, RCL, and NCLH in that order.  However, the operators, particularly CCL, corroborated our assertion that Europe pricing is under pressure in the face of a weakening economic backdrop and accelerating supply growth (+5%) in 2015. 


CCL is the most exposed to European sourced customers and indeed we are most concerned with that stock as it sits at a 52 week high.  Management didn’t exactly bolster the long thesis that yields should outperform the industry (furthest from peak theory) as brand building costs abate (they probably won’t).  On the other hand, NCLH seems the best positioned for 2015.


Please see our detailed note:

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On January 8th we hosted our quarterly Macro Themes conference call in which it detailed the THREE MOST IMPORTANT MACRO TRENDS it has identified for 1Q15 and the associated investment implications.


We encourage you to check out the Video Replays for each theme below:


Global #Deflation




Long #Housing?

Knapp Headlines Strong, But...

Last night Malcom Knapp released casual dining sales results for December, estimating that same-store sales increased +2.2% as guest counts decreased -0.5%.  As expected, restaurant stocks are rallying on the print.  While the headline numbers are strong, the underlying trend is quite the opposite, as same-restaurant sales and traffic declined -2.0% and -4.2%, respectively, on a two-year average basis. 


For the quarter, same-restaurant sales increased +1.5% as guest counts decreased -0.6%.  While 4Q, as a whole, was strong, December marked the second straight month of deceleration in the two-year trend of both measures, suggesting that the state of the casual dining industry isn’t quite as strong as people suspect. 


The reality is, we’re not going to fight the headlines and with another 2-3 months of weak comparisons on tap, we imagine sentiment surrounding restaurant stocks will remain high over the near-term.  However, we believe the recent run-up, which we properly positioned for, will soon provide us with a plethora of opportunities on the short side.


Stay tuned.


Takeaway: 200 tables on average could even be more than what the gov’t is willing to allocate – investors won't like that

300-500 tables per new Cotai casino looking increasingly unlikely



A reliable contact in Macau has indicated to us that the new Cotai projects may be allocated only 150 tables or less on average each.  The smaller than expected allocation would likely disappoint some investors.  Estimates of up to 550 tables for Wynn Palace and 400 for some of the other new Cotai properties have been offered.  WYNN management has been particularly bullish regarding their potential allocation.


In public commentary from both the Macau government and State officials from China including President Xi Jinping during his Macau visit, it has become clear that diversifying the economy away from gaming is a clear public policy goal.  We believe this is no longer just talk – active measures are being taken to achieve this goal.  A lower table allocation is certainly one measure.


With Galaxy Phase II opening in Q2 (mgmt expecting up to 500 tables), we should get a feel for numbers soon.  Galaxy may obtain one of the healthier allocations since they're a 1st mover and have built a solid relationship with the Chinese government. If they are allocated significantly below what is expected, it could be an ominous sign.


Investors would likely react negatively as projections tend to be made on a revenue per table basis.  Thus, fewer tables equates to fewer revenues.  We don’t agree with this modeling approach and would not necessarily view a 200 table allocation as negative based on current demand trends, at least over the short term.  After all, we expect cannibalization so table migration from existing properties should somewhat alleviate the problem of too few tables at new properties.  Moreover, dealer costs will be subdued.


However, if market demand improves, gaming revenue growth could be impeded by short supply.  Of course, this may be what the government wants and relatively small table allocations should be a signal that government is serious about curtailing gaming growth or at least slowing growth rates below that of non-gaming sources.  

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