Bonds, Oil and Russia

Client Talking Points


U.S. employment tends to look good at the end of economic cycle. The Bond market will vote on the strength of this jobs report. The UST 10YR yield continues to signal lower-highs within its formation #crash. The immediate risk range for today is 1.89-2.11.


Oil bounced, and then failed. Remember when they said that higher lows could be good for oil? Well, that’s gone now. The firings in Energy states will happen during January to March. Stay tuned. The immediate risk range for WTI Oil today is 46.43-51.86.


Don’t forget that most bounces were led by counter-trends: oil, Russia and junk. That’s low value bouncing. Russian equities (RTSI) getting tagged and bagged for another -5.3% loss, so much for the bounce, and that has everything to do with deflation.

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


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



If I had asked people what they wanted, they would have said faster horses.

-Henry Ford


The percent of 18-34 year-olds living at home averaged 27.6% from 1983-2007, from 2008-2014 it averaged 30.5%.

LEISURE LETTER (01/09/2015)

Tickers:  LVS, GALAXY


Galaxy– The Macau government will not issue a suspension of construction order at a yet-to-be completed 36-story building at Galaxy Macau Phase 2, following a fire that partially destroyed the base of one of its ornamental cupolas.

Article HERE

Takeaway: We believe Ph2 is still on target for May holiday opening.


LVS– MBS sues chairman of For You Group for S$3.9 million over debts in HK.  “Mr Chen confirms that the action is his personal matter; the shares of one of his private companies are the subject assets of the charging order; and the matter can be resolved the soonest. The board considers that the action and all the orders are personal matters of Mr Chen. Besides, the company confirms that it had no involvement in the matters,” said For You, which changed its name from China Packaging Group last November.

Article HERE

Takeaway:  MBS has struggled with its VIP business with volumes falling 29% YTD.  LVS appears to be adequately reserved. 


Niraku – Japanese pachinko company Niraku GC Holdings is seeking a HK listing in 1H 2015. The company hopes to raise about $75 million. If successful, Niraku would become the second pachinko company to list in the city. Dynam Japan Holdings raised $202 million in August 2012. 

Article HERE


Pagcor – reported a 6% increase in collections from P12.07bn (Jan-Nov 2013) to P12.8 billion for the same period in 2014. Charisse Chuidian, who heads the public relations team handling the three-hotel complex in the City of Dreams, whose soft opening last Dec. 14 was anything but soft. “Such a big crowd, to think that we didn’t  publicize it, no fanfare at all!” Charisse gushed.

Article HERE

Takeaway:  Philippines GGR growth recently have been outperforming. This bodes well for the grand opening of CoD Manila.


Paradise– casino revenues rose 3.8% in 2014 to KRW591.3 billion (US$541.6 million). Table revenue grew 3.5% to KRW 558.7 bn YoY. Slot revenue jumped 10.4% to KRW 32.6 bn.  Table drop gained 12.7% YoY in 2014 to KRW 5.3 trillion.

Article HERE

Takeaway: Modest sales growth for Paradise in 2014. 


TUI–  assumes ownership of EUROPA 2 for 280m euros.  The transaction will replace the previous charter agreement of the ship which was newly commissioned in 2013. The transaction consists of a cash component of around 67 million euros payable to the previous owner and the assumption of 211 million euros of debt.


Lionel Leong – Macau’s Secretary for Economy and Finance Lionel Leong Vai Tac said GGR was unlikely to return to YoY expansion until 2H 2015. Leong said the GGR decline was “positive” as it could give the industry breathing room to promote a more sustainable development model for the long run.

Article HERE

Takeaway: Echos similar comments made by Macau govt leaders 


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 9, 2015

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CHART OF THE DAY: How Is Your Favorite Macro Strategist Performing?

CHART OF THE DAY: How Is Your Favorite Macro Strategist Performing? - Chart of the Day

Editor's note: This is a brief excerpt from today's Morning Newsletter written by Hedgeye macro analyst Darius Dale.


*  *  *  *  *  *  *   

Keeping with the theme of consistent production, has your favorite macro strategist(s) consistently produced for you over time?


While I have no frame of reference on how to answer that question, the following chart can be used as a rough proxy to reasonably conclude that there is a possibility you have been overpaying for macro research and should strongly consider narrowing your list of service providers to those that consistently add value:

Knowledge, Experience and Ability

“If money is your hope for independence you will never have it. The only real security that a man will have in this world is a reserve of knowledge, experience and ability.”

-Henry Ford


For those of you that are currently employed on the buy-side, replace “money” with “performance” and “independence” with “job security” and re-read that quote.


Thought-provoking, isn’t it?


I borrowed that quote from the late Henry Ford to help make the following point: the buy-side and, to a large extent, the sell-side (via commission dollars) can be an ultra-competitive environment.


Specifically, it can be argued that no other industry has such an overt focus on consistently producing favorable outcomes as the financial services industry – well, maybe with the exception of NFL head coaching. Moreover, we can all agree that consistent production is integral to remaining gainfully employed in such a competitive industry.


That’s certainly not to say anyone who’s ever been let go was incapable of producing; in fact, I’ve seen some really sharp, incredibly outgoing people let go, and if you’ve been in the industry long enough, you have as well. The good news is that the good ones always land on their feet.


Back to the Global Macro Grind


Keeping with the theme of consistent production, has your favorite macro strategist(s) consistently produced for you over time?


While I have no frame of reference on how to answer that question, the following chart can be used as a rough proxy to reasonably conclude that there is a possibility you have been overpaying for macro research and should strongly consider narrowing your list of service providers to those that consistently add value:


Knowledge, Experience and Ability - Chart of the Day


Contrast that performance data that with the following sampling of key research calls our macro team has made since inception:


  • July ’08: moving to 85% cash in our model asset allocation (CLICK HERE to review)
  • March ’09: bullish on the S&P 500 (CLICK HERE and HERE to review)
  • May ’10: bearish on Eurozone periphery sovereign debt (CLICK HERE to review)
  • June ’11: bullish on long-term Treasury bonds (CLICK HERE to review)
  • November ’12: bearish the Japanese yen/bullish on the Nikkei (CLICK HERE to review)
  • December ’12: bearish on Gold (CLICK HERE to review)
  • January ’13: bullish on the S&P 500 (CLICK HERE and HERE to review)
  • April ’13: bearish on Emerging Market assets (CLICK HERE and to review)
  • May ’13: bearish on U.S. Treasury bonds (CLICK HERE and HERE to review)
  • February ’14: bullish on  U.S. Treasury bonds (CLICK HERE to review)
  • August ’14: bullish on the U.S. dollar and defensive large-cap U.S. equities/bearish on commodities and commodity-linked assets (CLICK HERE to review)


That’s certainly not to say that our performance would have been any good (or bad) if we were running a fund instead of our mouths over the past five-plus years!


In fact, we tip our hats to anyone who’s performed even modestly well throughout this era of centrally-planned markets. Moreover, we would tend to agree with the general assertion that the post-crisis era has provided investors with a difficult macro environment to consistently produce positive absolute returns and/or generate alpha in.


Rather, we highlight these calls to showcase that no matter the setting – i.e. buy or sell side – we’d employ the same top-down quantitative + bottom-up fundamental framework that led us to each of the aforementioned research conclusions.


If Henry Ford were alive today, he’d likely agree with our paraphrasing of his “knowledge, experience and ability” clause as the most important possession anyone in our industry can have – i.e. a #RepeatableProcess.


Will we always be on the right side of such integral macro market moves? Absolutely not! Just as in years past, there will be plenty of things that we completely miss or are flat-out wrong on.


The only thing we can promise you is that our six-person macro team will work tirelessly on your behalf. And in terms of manpower, analytical depth and #RepeatableProcess, we’ve come a very long way over the years; for example, please note the following juxtaposition:



To the extent you have not yet reviewed our 1Q15 Macro Themes, which we introduced yesterday afternoon, we encourage you to do so. As always the presentation is jam-packed with cutting edge data analysis and thoughtful, well-researched assertions.


The thematic investment conclusions of that presentation are as follows:


  • LONG U.S. Treasury Bonds (TLT)
  • LONG U.S. Dollar (UUP)
  • LONG large-cap Consumer Staples (XLP)
  • LONG large-cap Health Care (XLV)
  • LONG Homebuilders (ITB)
  • SHORT Japanese yen (FXY)
  • SHORT Emerging Markets (EEM)
  • SHORT High-Yield Credit (JNK)
  • SHORT large-cap Industrials (XLI)


Email us if you’d like to discuss these views further. As always, we encourage thoughtful pushback and appreciate a healthy debate. That’s what makes a market.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 1.89-2.11% (bearish = bullish Long Bond)

SPX 1 (bullish)

EUR/USD 1.17-1.19 (bearish)

YEN 118.10-121.01 (bearish)

WTI Oil 46.43-51.86 (bearish)

Gold 1175-1225 (bearish)


Keep your head on a swivel,




Darius Dale

Associate: Macro Team

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

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