• run with the bulls

    get your first month

    of hedgeye free


LEISURE LETTER (01/14/2015)



  • Jan 14:  AC Dec Revs
  • Jan 15:   LA Dec Revs
  • Jan 29:  PENN 4Q CC
  • Feb 2: Cod Manila Grand Opening


SJM –Nearly 100 workers from Palacio Lisboa, a restaurant inside Hotel Lisboa, complained to the Labour Affairs Bureau yesterday that they had been overworked in the past yet had not been compensated by the company.

Takeaway:  Prostitution ring Monday, now wage pressures. Hotel Lisboa has a lot on its hands.


Pollard Banknote Limited/KONAMI 

  • Kansas:  Launched on September 3, 2014, Kansas Lottery's $5 Frogger instant scratch game has sold in leaps and bounds—after only ten weeks on the market, it became the Kansas Lottery's highest selling $5 instant scratch game since 2005, and reached a remarkable sales index of 238! The proven sales-driving Frogger brand, published and licensed by KONAMI, is available to lotteries exclusively through Pollard Banknote.
    • Meanwhile, the Kansas Lottery reported $245m in sales for FY 2014 (ending June 2014) - second-largest annual sales amount and nearly $1 million above the previous year’s total.
  • Michigan: For FY 2014, the Lottery’s instant ticket sales reached $914,000,000— up 11% YoY, far exceeding the average U.S. lottery instant sales growth by almost threefold over the same time period.  The Lottery’s success can be attributed to a number of factors, including leveraging Pollard Banknote’s sales driving portfolio of instant ticket product innovations and growing its range of technology enabled products that extend the life of traditional instant tickets. In February 2014, the Lottery introduced its $30 instant ticket price point with the launch of $2,000,000 CA$H—a ticket that featured the sparkle and shine of Pollard Banknote’s patented Scratch FX®. Offering premium instant games at a higher price point proved to be a valuable strategy for the Michigan Lottery, as $30 instant ticket sales accounted for more than 9% of total instant sales in FY 2014.

 Takeaway:  2 jurisdictions (KS, MI) with momentum for Pollard Banknote


Red Lion Hotels – has entered an agreement to sell its Bellevue, Washington, hotel for US$35.4 million to an affiliate of Wig Properties. 

Takeaway:  $196k per key for this midscale property.


Crystal Cruises – kicking off its 25th Anniversary year by reporting significant booking revenue – nearly 80% of its budgeted outlook.  Looking ahead to 2016, for which the line is reporting 40% of maximum bookings, guests can save up to $5,950 per person on Crystal Serenity’s 102-day world cruise that follows a route round trip from San Francisco featuring segments to/from Sydney, Bali, Shanghai and Tokyo.  Until March 2, when fares are set to increase, all-inclusive luxury cruise fares start at just $1,730 per person.

Article HERE

Takeaway:  Crystal confirms other commentary we're hearing that Wave has gotten to a good start on the bookings side.


NCLH – key features unveiled on Regent Seven Seas Explorer (launching July 20, 2016)

  • Massive two-bedroom suite with built-in spa and eye-popping price: $5,000 per person per day
  • 10 categories for passengers to choose from, starting with the entry-level 407-square-foot deluxe veranda suite, which includes a living area and sleeping quarters. According to Robin Lindsay, executive vice president of ship operations for Regent, more than 60% of the ship's suites are 470 square feet or larger. Additionally, 70% of the balconies have 50% more depth than is typically found on Regent ships, which translates to balconies of almost 10 feet deep in 70% of the suites.
  • The line's popular restaurants return on Seven Seas Explorer, including Prime 7 Steakhouse (kudos for the gorgeous bar in which you can dine if you so choose) and the casual Veranda Cafe, with its elegant evening version, known as Sette Mari at La Veranda.
  • The Constellation Lounge, Regent's main theater, will host a wide range of activities, from cooking classes in the morning to concert recitals and theatrical performances at night. This theater features beautiful color schemes that can change at whim and hand-blown Murano glass lamps for a cozy feel. The Observation Lounge, with its "Great Gatsby"-inspired decor evokes a modern take on the roaring 20s.

Article HERE


Bohai Ferry – Acquiring the Costa Voyager was Bohai Ferry’s first step into the cruise business, renaming her Chinese Taishan and finding a unique deployment by sailing out of Yantai.  General manager of Bohai Ferry, Li Zhan, explained they expect to run their single vessel for a year before looking at more tonnage.

Article HERE


MSC – With four new ships on order through 2019, MSC Cruises may be intending to pick up three options between STX France and Fincantieri, taking them through 2022. When MSC’s double-order at Fincantieri was placed in 2014, the Italian cruise line said it had an option for one additional ship. Prior to that, MSC signed with STX France for two ships, plus an option of two more.


In today’s MSC Sinfonia drydock release, MSC said: “MSC Cruises currently carries roughly 40,000 guests per day, but by 2022 will double its capacity to 80,000 guests a day – 3.4 million per year – once the Renaissance Program is completed and the last of seven planned ships is delivered.”

Takeaway:  Build, build, build philosophy intact for MSC


Xi –Chinese President Xi Jinping warned the war on corruption was far from over, despite the country's many achievements.  The CPC had dealt with cases implicating corrupt high-ranking officials -- such as Zhou Yongkang, Xu Caihou, Ling Jihua and Su Rong -- which showed the world that the CPC was not scared of taking a "self-purifying" approach, according to Xi.  Xi Jinping told discipline officials that "strong remedies must be used to cure the illness" of corruption.

Article HERE

Takeaway:  Xi reiterating his hard stance on anti-corruption


Pacman vs Mayweather –  Promoter Bob Arum told Yahoo Sports on Tuesday that Manny Pacquiao has agreed to terms for a May 2 bout with Floyd Mayweather, and that the only thing in the way of the long-awaited fight occurring is Mayweather's approval. Unconfirmed sources say the fight may be on May 2 at the MGM Grand Garden. 

Article HERE

Takeaway: Big win for MGM if fight happens at the Arena


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. 

Japan, Commodities and Financials

Client Talking Points


In other news, the Yen had a surprise move above my immediate-term resistance line of $118.48 vs. USD, so that delivered a -1.7% down day for the Nikkei (which is down -6.4% now since its centrally planned gap higher on DEC 8th); the FX war gets more interesting now – Euro is going all in devaluation, and Fed needs to push out the USD dots.


CRB Index had another fresh new low of 220 yesterday (-30% crash since June) which is pile driving Dr. Copper down another -6% this morning to $2.48 (Copper down 19% and 25% since October and June, respectively); no idea how levered credit to inflation expectations assets works from here – will let bulls figure that out.


No matter what the European planners do, JPM/WFC/BAC still have to report reality in NIM terms (Yield Spreads at 12 month lows this morning) and the Financials (XLF) are already -3.6% year-to-date signaling bearish TREND in my model. Will that hold? We’ll see. But we do not like late-cycle Industrials (XLI) or Regional Banks (KRE).

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


Hedgeye's Morning Macro Call *LIVE* with @KeithMcCullough this morning at 8:30am.  Gratis - humpday special >> https://www.youtube.com/watch?v=Y53fx9VOIMg



You cannot push any one up a ladder unless he be willing to climb a little himself.

-Andrew Carnegie


Chipotle Mexican Grill Inc. suspended sales of pork at about 1/3 of its more than 1,700 restaurants after finding an important supplier didn’t comply with its animal-welfare standards, a spokesman said Tuesday.

CHART OF THE DAY: Were You Too Late Getting Long Late-Cycle?

CHART OF THE DAY: Were You Too Late Getting Long Late-Cycle? - Chart of the Day

Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.46%
  • SHORT SIGNALS 78.35%

Creatively #Patient

“Creative minds tend to make unusual associations because they engage in divergent thinking.”

-J.P. Guilford


Joy Paul Guilford was one of the first credible American researchers in the field of creative thinking. He was a psychologist (born in Nebraska in 1897, moved to LA – died 1987) “best remembered for his psychometric study of human intelligence, including the distinction between convergent and divergent production.” (Wikipedia)


Is your portfolio converging  or diverging from consensus? When you diverge from the crowd, are you typically early – or happy to be late? Irrespective of your answers to those questions, isn’t the idea of a diversified portfolio to have creative ideas that are all of the above? After all, it’s always nice to have something working!


Today is Ratification Day in the USA (Treaty of Paris officially ended the American Revolution vs. European Central Planners). I love ratifying the end of broken ways. And, even if all of European markets (and US markets reacting to them) only trade on the next central planning rumor today, I’ll always love the divergent thinking that’s been embedded in American independence.


Back to the Global Macro Grind


Yep, it’s all about the love this morning. I said it on the Q1 Macro Themes Call and I’ll say it again this morning – I absolutely love this market. The Global Macro long/short market of non-consensus ideas, that is!


Here’s a not so creative idea. Asset price #bubbles can pop.

Creatively #Patient - bubble cartoon 09.09.2014

The US stock market #bubble has been down for 8 of the last 10 trading days, and plenty of the #bubbles within the bubble (think social media, MLP, energy, TSLA in 2020, etc. stocks) continue to pop.


But, there’s always a bull case to be made somewhere. And, compliments of Hedgeye, asset price #deflation becomes the creative asset of the new buyer, from lower prices. We need to cross the #Quad4 #Deflation bridge before we get to #Quad1.


Are you with us and bullish on #Housing? Yesterday’s macro market action typified the opportunity that is being Creatively #Patient. US equity futures were green in the a.m., then ramped on news from a US homebuilder that they had a good quarter (KBH). Then:


  1. KB Homes (KBH) told the Old Wall that they still have margin pressure associated with what was a bad trailing 12 months
  2. Oh, and that they do a lot of business in the state of Texas
  3. KBH went from being up nicely to -18% on the day (so we #timestamped buy there in Real-Time Alerts, #patience)


Texas? Jobs correlated to asset price #deflation of West Texas Crude? Pardon?


Yeah, really creative thought path there guys. If you didn’t know that #Deflation’s Dominoes go like this: Yens and Euros burned by central planners à Strong USD vs Yens and Euros à Crashing Oil à Shaking High Yield Debt Markets (spread risk breakout) à Levered Energy (MLP) stocks smoked à Job losses in Texas, the Dakotas, etc…


Well, I guess now you know.


So join my boy, Mr. T (as in TLT Long Bond) in commemorating another fresh new 12 month high in the best way to play global #GrowthSlowing + #Deflation. Because lower-bond yields are discounting a peak in late-cycle job adds in a late-cycle economic indicator’s (inflation) Energy states.


What other wild and creative thought path can we come up with in lieu of the aforementioned causal factor embedded in crashing long-term bond yields (10yr started 2015 at 2.17% don’t forget)?


  1. Down Long-term Treasury Yields
  2. Compressing Yield Spread (long-end minus short-rates)
  3. Short the Financials?


Unless you’re still thinking it’s different this time, Financials are cyclicals too. And a core driver of bank earnings is called NIM (net interest margin) which is driven by the spread between the short and long-end of the Treasury curve.


Not to pick on people who got plugged chasing another US equity market top on December 29th, but that was a seminal day for we revolutionaries who refused to buy into the year-end CNBC hype.


At the close of US trading on December 29th:


  1. SP500 = all time high of 2090 (it has corrected -3.2% from there)
  2. Big Cap Financials (XLF) = $25.04 close (correction = -4.7% from there)
  3. Regional Banks (KRE) = $41.18 close (correction = -8.9% from there)


Again, I know. If all you do is talk about the SP500 (which you can’t charge an active manager premium fee for):


A)     At -3.2%, it hasn’t corrected that much – and, by the way, there have been great early-cycle and consumption sectors to be long (after they deflate) on oversold signals within the SP500 too

B)      But the mistakes associated with buying either late-cycle Industrials (think global demand), #deflation risk sectors (energy), and US Regional Banks have been severe


It’s early in the year, and my job is to help make sure you don’t underperform. The best way to do that is to think a little more creatively than the next fund manager, and be a lot more #patient.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 1.85-2.01%



VIX 17.45-21.99
WTI Oil 44.01-49.03
Copper 2.43-2.65


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Creatively #Patient - Chart of the Day

January 14, 2015

January 14, 2015 - Slide1



January 14, 2015 - Slide2

January 14, 2015 - Slide3

January 14, 2015 - Slide4




January 14, 2015 - Slide5

January 14, 2015 - Slide6

January 14, 2015 - Slide7

January 14, 2015 - Slide8

January 14, 2015 - Slide9

January 14, 2015 - Slide10

January 14, 2015 - Slide11
January 14, 2015 - Slide12

Big Eyes

This note was originally published at 8am on December 31, 2014 for Hedgeye subscribers.

“The only thing worse than being blind is having sight and no vision.”

-Helen Keller


Earlier this week I made my annual visit to my eye doctor.   As per usual for someone that has just eclipsed their 40th year, my eyes were a little worse this year compared to last.  The doctor also had an interesting diagnosis, he told me I’m the perfect example of someone with environmental myopia.


Luckily enough this “problem” is not just mine and in some respects Darwin should be proud.  According to Freakonomics.com:


“It has long been thought that nearsightedness is mostly a hereditary problem, but researchers led by Ian Morgan of Australian National University say the data suggest that environment has a lot more to do with it.


Reporting in the journal Lancet, the authors note that up to 90% of young adults in major East Asian countries, including China, Taiwan, Japan, Singapore and South Korea, are nearsighted. The overall rate of myopia in the U.K., by contrast, is about 20% to 30%.”


According to the aforementioned study, and others, there is an increasing prevalence of near sightedness globally and it is primarily the result of people spending too much time inside focused on small screens.   Specifically, the bright indoor light stimulates the retinal transmitter dopamine, which is the structural basis of myopia and, for all intents and purposes, makes the eyes grow too big.


In the world in which many of us live working indoors and focusing on computer screens, this idea of environmental myopia is fine.  That said, to the extent Armageddon actually arrives and our lives change meaningfully, long haul truck drivers would have a real advantage over many of us in a hunter gather world.


Back to the Global Macro Grind...


As the stock market year of 2014 winds down, environmentally caused near sightedness is really a good topic to contemplate as we head into 2015.  It is actually, whether clinically diagnosed or not, an ailment that already effects many stock operators.  Specifically, that is the over focus on short-term trends when thinking about and contemplating the future.


Big Eyes - Crazy bull cartoon 08.19.2014


According to a summary from about a year ago, the venerable investment bank Goldman Sachs (and no offense to Goldman, as we probably could have picked on any major firm) made a number of key predictions for 2014, which included the following:


1)     Oil – Oil will remain stable at current prices due to falling supply in some areas and political uncertainty in others;


2)     China – Stable growth in China of 7.5% will be enough and give investors enough confidence to propel China higher in 2014;


3)     Emerging markets – Expectation of rate hikes in emerging market as growth continues to accelerate.


Now to be fair, one area in which Goldman nailed it, at least according to this article, is that the Fed would remain on hold.


But in aggregate it reinforces the point, which is that the biggest challenge many stock operators face is actually themselves.  Whether we call it environmental myopia or short termism, the risk is that we put too much credence in the recent past and project it forward.  The classic example of this is probably oil.


While signs were emerging at the start of 2014 of an emerging production glut and strong U.S. dollar environment, very few, if any, prognosticators, predicted a total collapse in global energy prices.   But as outlined in the Chart of the Day, this is exactly what happened.


So as we look forward into the stock market year of 2015, this biggest mistake we can make is likely to project the most recent past into the future.   So does that mean that utilities are going to crash, oil is going to rally, and the ruble is set to become a safe haven?  Likely not, but it does mean that if we all have one resolution in 2015 it is that we should become more aware of our person fallibilities.


As one of Hedgeye’s favorite academics Daniel Kahneman said about short termism:


“If owning stocks is a long-term project for you, following their changes constantly is a very, very bad idea. It's the worst possible thing you can do, because people are so sensitive to short-term losses. If you count your money every day, you'll be miserable.”


Despite the stress of short-term performance that many of you have to endure by the nature of the fund management business, Kahneman is definitely spot on as it relates to the emotional impact of focusing on short-term results in investing.  This is the exact emotion, in fact, that causes many investors to sell low and buy high.


On a closing note, we’d like to thank all of your for continuing to support Hedgeye and our efforts to recreate Wall Street research in an accountable and transparent way.  It’s been almost seven years since we started the firm and without the support of all of you it wouldn’t have been possible.


Our immediate-term Global Macro Risk Ranges are now :


UST 10yr Yield = 2.10-2.23%

SPX 2015-2115

VIX 12.85-19.95

YEN 118.49-121.66

Oil (WTI) 52.96-55.91

Gold 1168-1205 


Keep your head up and stick on the ice,


Daryl G. Jones

Director of Research


Big Eyes - 12.31.14 chart

Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.