Golden Tickets

“Almost only counts in horseshoes and hand grenades”


Golden tickets are, by definition, an exceedingly scarce commodity.  Occasionally they’re found at the nexus of chance and preparation.  More often they’re the product of randomness; the nebular nursery of accidental billionaires.     


Golden tickets are not like horseshoes or hand grenades.  Unfortunately, as I’ve learned, half-tickets don’t count.  Neither does simply recognizing a ticket…..even if only a few others have. 


Here’s a selection of some of my personal misadventures in golden ticket recognition:  

Golden Tickets - goldenticket 

2002:  I called a fledgling energy drink company and tried to invest $9,500 – all the money I could scrape together as a middle-class college kid with no connections.  They showed some minor interest – mostly I think they were just amused by a kid trying to pitch them on an inconsequential capital investment – but mostly gave me the blow-off.  I followed up a couple times but ultimately abandoned the pursuit.   You’ll know the energy drink company as ROCKSTAR – pioneer in the fastest growing beverage category of the last half-century.


2008/09:  I encouraged Hedgeye to pursue an investment in a young yogurt company located in central New York.   That upstart grew into the yogurt juggernaut known as Chobani which catalyzed the Greek yogurt renaissance and jumpstarted the fastest growing food category of the last decade.  Hedgeye was young itself and in the midst of a bid for the Phoenix Coyotes – it just wasn’t the right time.  


2015:  I have another idea in pocket but I’m not divulging….yet.


Back to the Global Macro Grind...


Golden tickets, however, are not the exclusive right of chocolate factory contestants or the providentially charmed.  Modern Macroeconomies of the last century have generally been born with a golden economic ticket that sits latent until the correct demographic and cultural factor cocktail pushes it out of dormancy. 


The story of the U.S.’s Golden Ticket can be contextualized simply and is key to understanding both its current economic situation and its intermediate term prospects.  Pulling back the charts and detaching from the myopia of every market minute can be a refreshing exercise as well.


Back to Basics:  GDP | Having ‘stuff’ is dependent on making ‘stuff’


Real GDP per capita = Average labor productivity * share of the population that is employed


More simply, at its core, GDP is the product of how many people you have making stuff and how much stuff each person can make. 


That’s about as fundamental as it gets, but the reality underneath that simplicity carries a lot of economic gravity.   The amount of goods and services the collective consumer can consume, on average, can increase only to the extent that each person can produce more (increased productivity) and/or the fraction of the population that is employed increases. 


1:  Accelerating Population Growth + Rising Labor Force Participation = Golden Ticket in per capita output


The rise of the Baby Boom generation in combination with an acceleration in immigration and the secular rise in female labor participation was a golden ticket event for the domestic economy.     

  • Employment & Participation:  from 1980 to 2007 employment grew 47% while the over 16 YOA population grew 35%, driving the fraction of the population employed from ~59% to greater than 67%.   The concurrent acceleration in the working age population and employment-to-population ratio catalyzed an epochal rise in per capita output and improvement in living standards.  This benefit was a one-shot deal.
  • Immigration:  Foreign born residents grew from 9.7M (~5% of the population) in 1960 to over 40M (~13% of the population) by 2010.  Indeed, from 1 immigration accounted for nearly 30% of total population growth in the United States.  Clearly, immigration has played a central role in U.S. population growth over the last half-century.  Immigration trends over the next decade+ will play an equally important role in determining how gracefully the U.S. traverses the demographic cliff. 

In the 1st chart of the Day below we show the 3 major inflections in labor force participation along with the projected decline in participation through 2020 based singularly on changing age demographics.   The multi-decade rise in participation peaked at the turn of the century and should remain in secular retreat through the back-half of the decade.  Improvements in per capita GDP enjoyed over the 1 period stemming from the rise in the fraction of Americans employed will likely prove somewhat transient.  


Golden Tickets - LFPR


Real Wage Growth:   Remember that time demand went down, supply went up and price rose…me neither

  • Labor Supply:  The Boomer generations entre into prime working age along with increased labor participation by women drove an acceleration in labor supply.  In isolation, rising supply of labor should have a depressive effect on the price of labor (i.e. the real wage)
  • Labor Demand:  That the US production function is Cobb-Douglass with the marginal product of labor proportional to average labor productivity is very ivory-tower.   More simply, remember that the real wage is the price paid to labor in units of output.    If productivity rises such that each unit of labor can produce more output (and assuming stable prices and end demand)  then the demand curve should shift to the right with both total employment and real wages rising – that’s the basic theory anyway.  As the 2nd Chart of the Day below illustrates, empirically, the data supports the theory with real wage growth closely tracking the trend in productivity growth. 
  • Looking Forward:  Rising labor supply and slower growth in productivity in the decades following 1970 combined to depress real wage growth.  If those secular trends are slowing and/or reversing as most believe they are – i.e. slower employment growth, lower LFPR, moderating population growth – then labor supply growth should slow with tighter supply supporting gains in real wages.  Remember, however, that we’re talking about secular trends and that supply is only half of the supply-demand equation…..


Wild-Cards and Inconvenient Truths:  In the long-run productivity gains are the primary driver of economic growth….policy makers have a model for that, right?


The fading tailwind of rising population and labor participation suggests that, from here, the onus on real growth will fall increasingly on gains in productivity.      


To the extent tech innovation and the ICT driven productivity gains of the late 90’s can re-assert themselves in the back half of the current decade, real wage growth stands to benefit.   Whether higher entitlement spending, debt service costs and an accelerating dependency ratio emerge as material offsets to gains in real income remains to be seen. 


It’s also important to note that, despite its centrality to sustainable growth and canonical growth theory, policy makers don’t really know how to model and/or forecast productivity.  They more-or-less just plug something close to 2% into any intermediate and LT forecast because that’s what it’s been, on average, historically.  With growth itself only expected to average ~2% over the intermediate term, that is a huge assumption.    


Degree of Difficulty Doesn’t Count:  The discussion above is necessarily simplified but, in this instance, “almost” is probably sufficient  as it captures ~80% of what matters from a Trend perspective and offers an intuitive, tractable review of the growth, employment and income dynamics that have characterized the domestic, Golden Ticket improvement in living standards over the last 50-years. 


Understanding the implications of a secular shift in those dynamics alongside a reversal in the multi-decade monetary policy to inflate will be central to effectively navigating the forward Trend. 


From a Trade perspective, with Japanese 5Y yields at 0%, 10Y Bunds at 0.47% and the U.S. 10Y at 1.88% this morning, we continue to watch global deflationary forces swamp enervated inflationary policies in real time.    With Global growth slowing and deflation predominating, our most important macro call remains Long the Long Bond. 


It’s not a particularly sexy position or an especially complicated thesis but as Buffett is fond of saying… ”Degree of Difficulty Doesn’t Count” in (macro) investing. 


Our immediate-term Global Macro Risk Ranges are now:



Russia (RTSI) 708-796

VIX 17.31-21.99

USD 91.77-93.22

Oil (WTI) 44.41-49.98
Gold 1 


Best of luck out there today,


Christian B. Drake

U.S. Macro Analyst


Golden Tickets - Productivity

January 13, 2015

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Cartoon of the Day: Drip, Drip

Cartoon of the Day: Drip, Drip - oil cartoon 01.12.2015

Oil continued its epic plunge falling another 5 percent today to near six-year lows.

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McCullough: Why I'm in No Hurry to Buy Energy Stocks | RTA Live


In this excerpt from today’s Real-Time Alerts Live show, Hedgeye CEO Keith McCullough responds to a question about one stock in the energy sector.


Subscribe to Real-Time Alerts for access to the full show, plus all of Keith's signals, #timestamped and sent right to your inbox -


January 12, 2015

In today's edition of RTA Live, Hedgeye CEO Keith McCullough breaks down Real-Time Alerts positions as of 10:30AM on January 12th, and answers subscriber questions on Gold, S&P500, Biotech and more live on the air. 

LEISURE LETTER (01/12/2015)

tickers: mpel, nclh, htht


MPEL CEO Ho comments 

  • "No idea" how many tables Studio City will receive. 
    • Property had been designed for 500 tables, and the firm “hoped” to get as many as 400 early in the resort’s operation
  • Confirmed Studio City's all-in cost (including pre-funded interest) at US$3.2 bn and remain on track to open mid-2015. 
    • Planned attractions – including a collaboration between Hollywood studio Warner Bros and American comic book publisher DC Comics for a virtual reality ride called ‘Batman Dark Flight’, plus a 130-metre (427-feet) high ferris wheel to be called ‘Golden Eye’ and said to be Asia’s tallest – would help Macau to “diversify” its offer to tourists.
    • 5,000-seat ‘Studio City Entertainment Center’, a fully-operational television broadcast studio called Studio 8, and a nightclub under the Pacha branding made famous in Ibiza, Spain. There will also be a 300,000-square foot (27,870-sq metre) themed shopping mall.
  • Studio City strong premium mass focused because of its location near the Lotus Bridge crossing point linking Cotai to neighboring Hengqin Island
  • Reasons for MPEL HK delisting were purely administrative, and said the company had no plans currently for any fresh listing anywhere else to raise capital for any other schemes that it might pursue
  • Asked if the Macau gaming downturn meant the company might be laying off staff, Ho said no, adding the firm was planning to hire “8,000 to 10,000” extra staff for Studio City
  • Other development projects: “There are still development opportunities in Macau… After we’re done with phase one, there’s still phase two. We’ve only built on two thirds of the [Studio City] site. Of course we’re going to have to get the concurrence and support of the minority shareholders [for further development] – who have been great throughout this [initial] process. It’s going to be a very big equity cheque to write [for another phase]. So I don’t know if they are ready at this present moment in time.... But in terms of other jurisdictions…to be honest there are no jurisdictions as good as Macau.”

Article HERE

Takeaway: We think there is risk Studio City may only be allocated 150-250 tables.


NCLH – Kevin Sheehan has left NCL as CEO and is quickly replaced by Prestige CEO Frank Del Rio.

Takeaway:  This was solely a personal decision by Sheehan with no influence from Apollo or the Prestige integration.


China Lodging Group (HTHT) – announced prelim Q4 2014 results

  • REVPAR (blended) CNY153 vs CNY 160 
  • Like-for-like performance for 1,178 leased and manachised hotels opened for at least 18 months during the current quarter:
    • Occupancy rate 90% vs year-ago 93%
    • Average daily room rate CNY179 vs year-ago CNY179
    • RevPAR CNY161 vs year-ago CNY165 

Takeaway: Weak REVPAR from low end segment in China


Anti-graft – 

  • The Communist Party’s anti-graft agency begins its three-day plenum today with analysts saying that the crackdown on political factions and corruption in local governments is likely to be the top priority this year.

Article HERE

  • A compilation of select remarks by Chinese President Xi Jinping on the fight against corruption and the construction of a clean Communist Party of China (CPC) has been published.  The book was published by the Central Party Literature Press and the China Fangzheng Publishing House.

Article HERE


Philippines – A joint venture partner in two of Manila’s new private-sector casinos says the Philippines gaming industry is not being hit by the kind of slowdown seen in Macau. Andrew Tan, chairman and CEO Alliance Global Group Inc said, “In Macau, the slowdown is because the big chunk of their market is ultra-high rollers. We don’t have that segment of the market here. That ultra-high roller market is thinning out [in Macau] that’s why their growth has been slow last year but in the Philippines, we have a very different situation because our market here are more on the tourist side.”

Article HERE

Takeaway: Tan is justifying the rise in GGR last year in the Philippines


Unpaid leave – two casino operators have allegedly offered employees unpaid leave for as long as one year. According to a casino workers’ union affiliated with the Macau Federation of Trade Unions (FOAM), the proposal received an enthusiastic response from the workers, as it has been difficult for them to apply for leave in the past.

Article HERE

Takeaway: Political repercussions prevent layoffs


Southeastern Massachusetts casino license – 4 entrants

  • Massachusetts Gaming and Entertainment 
  • Seafan Trust under the name Sun Moon Resort
  • Somerset On The Move 
  • KG Urban

In addition, the Mashpee Wampanoag still intend to pursue a casino in Taunton.
They have until the 30th to make their non-refundable $400,000 deposit and must file site-specific plans by May 25.


Wyoming Lotto – CEO Clontz said the lottery has sold more than $6.5 million worth of tickets since it opened for business on Aug. 24.  This coming Friday, the lottery plans to unveil its first state-based game. And while he didn't want to give too many details away early, Clontz said the game will be similar to the state lotto games held in Colorado and elsewhere. Clontz said revenues would increase significantly if the lottery was to begin selling scratch cards - they are by far the main game that players have been asking for.

Article HERE

Takeaway: The 2013 law prohibits the sale of instant games due to addiction concerns. But will that end at some point?


Wave Season  – Cruise companies are opening 2015 with a raft of new TV ad campaigns seeking to take advantage of the upswing in consumer interest in cruise planning during Wave season.  The ads range from new variations on established themes at Norwegian Cruise Line and Princess Cruises to a first-ever TV campaign in the U.S. for MSC Cruises.  Another first will occur on Feb. 1 when Carnival Corp. unveils its commercial on TV’s most watched annual event, the NFL’s Super Bowl. 

Article HERE

Takeaway: Wave marketing dollars are likely to be higher in 2015


Venice  – The Veneto Region Administrative Tribunal has annulled an Italian Coast Guard decree on January 9 to ban cruise ships over 96,000gt from sailing through Venice’s Giudecca Channel and past St Mark’s Square to reach the city’s cruise terminal.  The decision is not likely to have an immediate impact on large ship transits since Cruise Lines International Association members have been voluntarily complying with these restrictions while awaiting a solution to the transit debate, which all the interested parties hope to have reached with the proposed Contorta Sant'Angelo Channel project.


‘We are expecting no cruise ships over 96,000gt this year, resulting in a predicted loss of just under 300,000 passengers," Sandro Trevisano, president of  Venice Passenger Terminal said. He added, ‘We are hoping this decision will induce the government to pass measures to support the return of cruise ships to Venice, however the Contorta Sant'Angelo Channel project would require 18 months for completion, putting our 2016 cruise business also at risk."

Article HERE


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. 

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