More Cowbell! A Roadmap Ahead of the ECB’s Thursday Meeting

Position: Short EUR/USD (etf FXE); Short France (EWQ)

All eyes are on Thursday’s ECB press conference at 8:30am EST – ECB President Mario Draghi has all but officially told the world that he’ll issue sovereign QE.  Below, we present a brief case for being short the EUR/USD, with no crystal ball to guide us on timing, sizing, or composition of a QE package.  


Shorting The EUR/USD:  Head’s You Win; Tail’s You Win

Summary:  We see Draghi coming up short in his pursuit to wave the QE wand and inflect the Eurozone’s rising tide of #deflation.   Our view has not diverged over past years:  Draghi remains in a box as he doesn’t have unified support from his country level lieutenants to carry out the necessary (remaining) “structural reforms,” and a sole inflation target to govern highly diverse economies is misplaced. Here’s our scenario analysis heading into Thursday:


1)      Should Draghi deliver (and/or under-deliver) on current  QE market expectations of €500 Billion (which themselves are highly speculative), we believe the EUR/USD is set to burn lower at least until he can better “fulfill” newly set expectations.

2)       Should Draghi over-deliver on QE, we expect the EUR/USD to burn on the back of an expanded balance sheet and against an environment of strong USD and weak oil.  Grounding our call remains the fundamentals of #EuropeSlowing.

3)      Should Draghi not deliver QE on Thursday, expect the EUR/USD to remain weak as deflation and abysmal growth prospects remain center stage for the region.

More Cowbell!  A Roadmap Ahead of the ECB’s Thursday Meeting - Draghi cartoon 01.20.2015


The EUR/USD remains broken across our TRADE, TREND, and TAIL durations.

More Cowbell!  A Roadmap Ahead of the ECB’s Thursday Meeting - zzzz. eurusd


Timing – Central Bank Hints:   A week ago, Draghi told the German publication Die Zeit that the ECB is ready to buy government bonds on Thursday in order to fulfill its mandate on price stability. Can we believe him?

  • The Swiss National Bank (SNB) thought so. In an emergency decision last Thursday morning (1/15) ahead of its expectation for the ECB to launch QE (which would weaken the EUR and encourage piling-in to the safe Swissy safe haven trade) it discontinued its 3 year running policy of a minimum exchange rate at 1.20 vs EUR and cut its main interest by 50 bps to -0.75%
  • The Danish Central Bank thought so. To limit currency appreciation, the Danish central bank over the weekend cuts its deposit rate to -0.2% from -0.05%
  • ECB.  Since its December meeting, Draghi has talked of a QE announcement falling in Q1 2015. While there’s been strong pushback, especially from the German camp against QE, since the New Year, Draghi’s public remarks on QE have not wavered and in fact increasingly suggest announcement at the 1/22 meeting


Timing – Economic Hints!

  • Under Draghi’s QE logic to ignite inflation, there’s no sense in delaying QE as the ECB is well off its mandate of price stability based on CPI at or near 2.0%
  • CPI is currently at -0.2% and has tracked lower for 3+ years (see chart)

More Cowbell!  A Roadmap Ahead of the ECB’s Thursday Meeting - zzzz. draghi cpi


Timing – Legality Roadblock Passed?

  • As an initial indicator for the legality around the ECB issuing QE, The European Court of Justice Advocate General said last Wednesday that the ECB’s bond-buying scheme – the Outright Monetary Transactions (OMT) Program – is “compatible in principle” with EU law.
  • While not a Final decision of the ECJ, and only a proxy for a pending round of QE, this decision appears to be a key “tell” that will positively influence Draghi’s decision making on QE
  • We expect the Germans in particular to cry a loud foul unless the terms and conditions of the QE meet their needs


Size – A Game of Expectations!

  • The market got a hold of an ECB draft proposal for a €500 Billion QE package. 
  • Since last year, Draghi has indicated the willingness of the ECB to tack on another €1Trillion to its balance sheet. 
  • What’s the magic number?  We don’t purport there to be one as we have little conviction that “this time around” Central Bankers can fix deep seated economic competitive issues with magical financial-based incentives.


Composition – Getting Ducks in Order: 

  • We suspect Draghi and ECB may well be waiting to get past the Greek election on January 25thuntil it decides on adjusting the composition of QE
    • Therefore the “details” may not come until March 5th when the ECB convenes its next press conference
    • Currently, the Greek anti-austerity party Syriza maintains a 4% to 6.5% advantage in three polls ahead of PM Samaras’ New Democracy government.


Composition – The Devil is in the Details:

  • Some big unanswered questions remain:
    • Will QE involve risk sharing among the National Central Banks, mandating them to buy up their own countries’ bonds?
    • Will the ECB take on the full risk/exposure in buying sovereign bonds?
    • Or will there be some mix between the two?
    • Also, will ECB purchases be excluded to only AAA rated paper?
  • The Germans remain the loudest cohort that still stands against QE and therefore is most interested in National Central Banks sharing risk in any QE program
  • As it relates to Greece, based on the election outcome, the ECB may have to alter its QE program. A couple examples:
    • Should Syriza win, the ECB may exclude Greek bonds from its purchasing program for fear the country may try to restructure the bonds after the ECB has purchased them.
    • Should Syriza win, it may influence the ECB to put more emphasis on the National Central Banks to fulfill QE purchases. This too would appease the Germans.


The days ahead could bring some monster swings across global markets. We’re positioned to stay short the EUR/USD, and today added a perennial country favorite to the short side, France via the etf EWQ.  We’ll be along for the ride. 


Matthew Hedrick


Cartoon of the Day: To QE or Not QE (That Is the Question)

Cartoon of the Day: To QE or Not QE (That Is the Question) - Draghi cartoon 01.20.2015

Will ECB President Mario Draghi deliver the central planning drugs as the currency bloc teeters on the brink of a deflationary spiral?

McCullough: Gold Showing A "Clean-Cut Buy Signal" | $GLD


During the Q&A portion from today's Morning Macro Call, Hedgeye CEO Keith McCullough explains why Gold is flashing a “Buy” signal in his proprietary model, and why tonight's State of the Union Address is essentially a non-event from a market perspective.

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Is The Worst Yet to Come In Russia? Top Russia Authority to Discuss

Hedgeye’s Macro Team is pleased to continue our special “Behind the Curtain” conference call series to discuss Russia’s Crash with Russia authority Anders Åslund on Tuesday, January 27th at 11:00am EST.


Åslund is one of the world’s foremost experts on Russia and the Peterson Institute authority on economic policy of Russia, Ukraine, and Eastern Europe.


Åslund is currently calling for Russia’s GDP to plunge -10% this year on sanctions, falling oil prices, and poor structural economic policy.


Similar to our previous speaker, former U.S. Ambassador to Russia Michael McFaul, Åslund brings on the ground experience across multiple Russian regimes to offer broader context on Putin’s Russia.


Specifically, Åslund served as an economic adviser to Russian President Boris Yeltsin in 1991-94 and to Ukrainian President Leonid Kuchma in 1994-97, followed by key economic advisory positions to the Baltic states and Kyrgyzstan.


Åslund will provide 30 minutes of prepared remarks, followed by open Q&A moderated by Hedgeye’s analyst Matt Hedrick.


Is The Worst Yet to Come In Russia? Top Russia Authority to Discuss  - HE M putin2



  • Forecasted view of the Russian economic environment
  • Assessment of the decline of the Russian Ruble and 2015 outlook
  • How falling energy prices will impact the Russian government and budget specifically
  • Discussion of the current and forecasted state of sanctions against Russia and assessment of their impact
  • Russia’s involvement in Ukraine:  War or Resolve?



  • Toll Free Number:  
  • Direct Dial Number:  
  • Conference Code: 275897#

Ping for more information.





Anders Åslund has been a senior fellow at the Peterson Institute since 2006. He is also an adjunct professor at Georgetown University. He examines the economic policy of Russia, Ukraine, and Eastern Europe, as well as focuses on the broader implications of economic transition. He worked at the Carnegie Endowment for International Peace from 1994 to 2005, first as a senior associate and then from 2003 as director of the Russian and Eurasian Program. He also worked at the Brookings Institution and the Kennan Institute for Advanced Russian Studies. He earned his doctorate from Oxford University.


Åslund served as an economic adviser to the governments of Russia in 1991–94 and Ukraine in 1994–97. He was a professor at the Stockholm School of Economics and the founding director of the Stockholm Institute of East European Economics. He has worked as a Swedish diplomat in Kuwait, Poland, Geneva, and Moscow. He is a member of the Russian Academy of Natural Sciences and an honorary professor of the Kyrgyz National University. He is chairman of the Advisory Council of the Center for Social and Economic Research (CASE), Warsaw, and of the Scientific Council of the Bank of Finland Institute for Economies in Transition (BOFIT).


He is author or coauthor of 13 books, including How Capitalism Was Built: The Transformation of Central and Eastern Europe, Russia, the Caucasus and Central Asia (Cambridge University Press, 2007 and 2013), The United States Should Establish Permanent Normal Trade Relations with Russia (2012), How Latvia Came through the Financial Crisis (2011), The Last Shall Be the First: The East European Financial Crisis (2010), The Russia Balance Sheet (2009),How Ukraine Became a Market Economy and Democracy (2009), Russia's Capitalist Revolution: Why Market Reform Succeeded and Democracy Failed (2007), Building Capitalism: The Transformation of the Former Soviet Bloc (Cambridge University Press, 2002), How Russia Became a Market Economy (Brookings, 1995), Gorbachev's Struggle for Economic Reform, 2d ed. (Cornell University Press, 1991), and Private Enterprise in Eastern Europe (Macmillan, 1985). He is also editor or coeditor of 16 books, including The Great Rebirth: Lessons from the Victory of Capitalism over Communism (2014), Russia after the Global Economic Crisis (2010), Challenges of Globalization: Macroeconomic Imbalances and Development Models (2008), Europe after Enlargement (Cambridge University Press, 2007), and Revolution in Orange(Carnegie Endowment, 2006).

HAIN: Do You Know What You Own?

Takeaway: We’re releasing a Black Book deep dive on HAIN. Dial-in details and materials to follow.

We’re holding a conference call this Thursday, January 22, at 1pm EST to update our short thesis on HAIN.


The call will focus on updated financial performance — which includes slowing trends, compressing margins, and deteriorating returns – since our initial short call. 


We’ll also take a detailed look at the UK business, which we believe is merely a conventional food business rather than an organic one – and should be valued as such.  We’ll hit on several other key points throughout the presentation, all of which indicate the company is severely misunderstood and mispriced.


Our sum-of-the-parts analysis suggests substantial downside.

LEISURE LETTER (01/20/2015)



  • Jan 29:  PENN 4Q CC
  • Feb 2: Cod Manila Grand Opening
  • Feb 3:  GLPI 4Q CC


David Group - closing 3 VIP rooms (Four Seasons, L'Arc, and MGM Macau). The closures allow the company to expand abroad  The three rooms will close on January 31 while the others will continue to operate as usual. In 1Q 2015, David Group will open VIP operations in Manila (Philippines), Da Nang (Vietnam), and Jeju (South Korea) respectively.” 

Takeaway:  David Group will continue to wind down their business in Macau but they are not pulling out.  The operators can use those leftover tables in their new properties.


Resorts World Manila - Phase 3 of Resorts World Manila, owned by Travellers International, will have additional gaming space. There will also be additional hotel capacity in Phases 2 and 3. A total of PHP6 billion (US$134.4 million) of the PHP16.8 billion net proceeds raised by Travellers International in an initial public offering in 2013 had been spent or earmarked for extensions to the Resorts World Manila casino resort as of December 31. A further PHP259.8 million from the IPO proceeds has been set aside for general corporate purposes, added the filing.

Article HERE


MAR - opened more than 46k rooms in 2014. For 2015, company expects more than 1 million rooms open or under development.

Takeaway: MAR's 2014-2017 goals included opening 200-235k new rooms. 2014 new room growth was a slow start but that should pick up in 2015. 


NCLH - Norwegian Getaway will be used as a floating hotel in 2016 in Rio de Janeiro, Brazil 

Article HERE


RCL Royal Caribbean Cruises Ltd. (RCCL) will launch a new Internet-based reservations system for retailers in March called Espresso, its first complete upgrade since it introduced CruiseMatch in 1990. It will be used by all of the RCCL brands, including Royal Caribbean International, Celebrity Cruises and Azamara Club Cruises. Espresso enables agents to compare up to four potential bookings at one time. Espresso will be optimized for mobile phones and tablets, which is important to home agents visiting clients, said Vicki Freed, Royal Caribbean’s senior vice president of sales.

Article HERE


SilverSea -  SilverSea has launched ‘ultra-inclusive' pricing for all Mediterranean cruises this year. For new bookings made on or after 15 January 2015, fares will now include WiFi and shore excursions.

Article HERE

Takeaway: Could 2015 be the year of the add-ons? Many cruise lines are offering them, even luxury ones.


Gaming tax  Secretary for Economy and Finance Lionel Leong Vai Tac said Sunday that the results of the government’s mid-term review on the gaming industry this year would determine if it’s necessary to adjust the gaming tax upon the renewal of the city’s gaming concessions.

Takeaway:  We don't think a gaming tax hike is likely but it does add another thing to worry about.


Gaming task force Macau government announced on Monday the establishment of an interdepartmental task force on the gaming industry. The main goal is to address the issue of potential job layoffs in the sector.  The government however stressed that up to Monday, it had only received one case of workers being laid off by a junket operator.  So far in January, the gaming regulator had received one request from a junket operator to have its licence cancelled. 

Takeaway:  It would be political suicide for any concessionaire to lay off workers. Meanwhile, the junket community may continue to shrink.


S'pore self-barring – Singapore’s National Council on Problem Gaming (NCPG) is to study the feasibility of allowing whole groups of people to apply to be barred from the city’s gaming resorts under the city-state’s casino self-exclusion program.  The groups under consideration are local (i.e., non-foreign) workers and self-identified members of religious groups.


As of end-2014, the number of casino self-exclusions stood at almost 191,000, up by 6.3% QoQ, according to data from NCPG.  Over 90% of casino self-exclusions involved foreigners, according to the council.  

Article HERE


2 new SK casinos – South Korea said it will approve two more casino resorts and the building of around 5,000 new hotel rooms this year, hoping to boost tourism investment by around 3.5 trillion won (S$4.3 billion). The government would choose operators to invest around 1 trillion won each in two integrated resorts with foreigner-only casinos by the 2H 2014 - part of a three-year plan to boost the economy.

Article HERE 


Vietnam approved a $4 billion resort on Phu Quoc Island that would include a casino with 2,000 slot machines and 200-400 roulette tables. In addition, the resort would have conference centers and an international five-star hotel with 3,000 rooms.

Takeaway: A win for the suppliers


Wisconsin Hard Rock – According to WISN-TV, Gov. Scott Walker is close to reaching an agreement with the Menominee Indians to build their $800 million Hard Rock casino in Kenosha. Walker said the "biggest stumbling block" is trying to reach a deal that would not result in the state having to refund $100 million in potential lost revenue to the Potawatomi Tribe if the Kenosha Casino moves forward.

Article HERE 

Takeaway: This would be bad news for the Chicago-area casinos.


China Q4 GDP - 7.4% growth vs consensus of 7.2%


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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