PODCAST | McCullough: Short (with Impunity) the "Booming Growth!" Cheerleaders and Mo-Mo Monkeys


In this must-listen, complimentary podcast of Hedgeye’s Morning Macro Call, CEO Keith McCullough discusses today’s lackluster GDP report,  the ‘horrific’ earnings season and where the best opportunities are right now around the globe.


PODCAST | McCullough: Short (with Impunity) the "Booming Growth!" Cheerleaders and Mo-Mo Monkeys  - ch5


LEISURE LETTER (01/30/2015)




  • Feb 2: Cod Manila Grand Opening
  • Feb 3:  GLPI 4Q CC
  • Feb 3: WYNN 4Q CC
    • ; pw: 57961245
  • Feb 12: MPEL 4Q CC
    • (1866) ; pw: MPEL
  • Feb 17: MGM 4Q CC
    • ; pw: 8870181

    headline story 

    Macau – The minister for Social Affairs and Culture in Macau, Alexis Tam Chon Weng restated the government’s determination to ban smoking anywhere in casinos to protect the health of gaming employees and patrons. The Health Bureau (SSM) is aiming to introduce a full smoking ban in casinos. This would mean that that smoking would be prohibited not only on mass gaming floors, but also within VIP rooms. Current smoking lounges would also be forced to close if the bill is approved.


    He added that SSM is hoping to finish revising the legislation and to submit it to the Legislative Assembly in the first half of 2015.


    According to a govt survey, over 70% of Macau residents back a full smoking ban. The survey also indicates that about 80% of casino workers agree with a full smoking ban that includes VIP rooms; about 85% of surveyed tourists also said that they are not against a full smoking ban.

    Mr. Tam revealed that the government met with the executives of casino operators to understand their views on the full smoking ban. Casino companies are hoping that the government will allow them to keep current smoking lounges, like those found in international airports which provide smokers with a separate smoking area. However, the Secretary stressed that the government stands firmly in its plan to implement a full smoking ban, meaning that smoking will be prohibited within the entire premises of casinos’ resorts, and that smoking lounges will therefore not be allowed. 

    Article HERE

    Takeaway:  We have warned for months of a possibility of a full-scale smoking ban. It looks like it will become a reality although implementation is not imminent.




    MPEL - has announced that it will give all its employees, except managers, a bonus equivalent to one month’s pay. An internal notice also says the company will promote some 1,300 employees or transfer them to its new Studio City casino-resort. The notice says Studio City will employ 9,000 workers when it opens.

    Article HERE

    Takeaway: At least it's not a 14th month bonus. No doubt labor costs will be higher in 2015. 


    Donaco Int - Boutique casino operator Donaco International Ltd has agreed to acquire the Star Vegas Resort and Club casino property in Poipet, Cambodia, for a consideration of US$360 million. The deal would be closed by April. Donaco is currently a one-property operator, running the Aristo International casino hotel in Lao Cai, in northern Vietnam.

    Article HERE


    GTECH - signs $800M term loan; further reduces size of bridge loan for IGT acquisition.  Bridge load size now at $4.9B from original $10.7B


    CCL (Princess) - A limited-time payday deals offer covers discounts on four cruises popular with UK holidaymakers and has been made available to encourage consumers to book over the next few days after they get paid for the first time in 2015.

    Article HERE

    Industry News

    Macau – Statistics and Census Service (DSEC) indicated that visitors on package tours totaled 1,190,000 in December 2014, up 35.8% YoY. Package tour visitors from Mainland China surged by 51.5% YoY to 991,000, with 328,000 coming from Guangdong Province, up by 17.4%.  

    Article HERE

    Takeaway:  No slowdown in the low-end, family, non-gaming oriented tourists coming to Macau


    Singapore fines - The Casino Regulatory Authority (CRA) has taken action against Marina Bay Sands and Resorts World Sentosa for admitting patrons who are not supposed to be in the casinos. MBS was fined a total of S$65,000 for six such instances between July 1 to Dec 1, 2013. The heavier fine of S$45,000 was imposed on MBS because it failed to keep out two persons under exclusion orders from its casino. The remaining S$20,000 penalty is for it allowing four patrons from overstaying their 24-hour entry levies.

    Article HERE


    Maryland - The Maryland Lottery and Gaming Control Commission unanimously voted Thursday to allow Casino Baltimore and Maryland Live! Casino at Arundel Mills Mall to each reduces their count of slot machines by 300, bringing the number of slots at the Baltimore facility down to 2,200, and the pool of machines at Maryland Live! to 3,922. The reductions will be completed by April 1.


    Article HERE

    Takeaway: Slot play per property may be topping out at Maryland due to a swarm of new competition lately.

    Cuba - Cuba Cruise offers ways for US citizens to cruise to Cuba

    Article HERE

    Takeaway:  Still many restrictions for US cruisers to travel to Cuba but at least cruise lines are thinking about it now.


    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.


    Takeaway: Today we show empirically why valuation should remain a limited-to-negligible part of your intermediate-term macro risk management process.


    Long Ideas/Overweight Recommendations

    1. Consumer Staples Select Sector SPDR Fund (XLP)
    2. SPDR Gold Shares (GLD)
    3. iShares U.S. Home Construction ETF (ITB)
    4. PowerShares DB U.S. Dollar Index Bullish Fund (UUP)
    5. iShares 20+ Year Treasury Bond ETF (TLT)
    1. LONG BENCH: Vanguard REIT ETF (VNQ), Utilities Select Sector SPDR Fund (XLU), Vanguard Extended Duration Treasury ETF (EDV), Healthcare Select Sector SPDR Fund (XLV)

    Short Ideas/Underweight Recommendations

    1. SPDR Barclays High Yield Bond ETF (JNK)
    2. iShares MSCI Emerging Markets ETF (EEM)
    3. CurrencyShares Japanese Yen Trust (FXY)
    4. Industrial Select Sector SPDR Fund (XLI)
    5. SPDR S&P Regional Banking ETF (KRE)
    1. SHORT BENCH: SPDR Oil & Gas Exploration & Production ETF (XOP), CurrencyShares Euro Trust (FXE), WisdomTree Emerging Currency Fund (CEW)



    Allocating to Gold on the Pullback: Today we are adding the SPDR Gold Shares (GLD) ETF to the long side of thematic investment conclusions. It’s debut in the top-5 implies that we anticipate better absolute and relative returns than the macro exposure it replaced: Healthcare (XLV). In line with our now-bullish bias on Gold, we are removing iShares TIPS Bond ETF (TIP) from the short side of our thematic investment conclusions altogether.


    Our bullish bias on Gold can best be summarized by Keith’s Real-Time Alerts signal at 10:27AM on Tuesday:


    Going back to the exposure that it replaced, please note that we still anticipate positive absolute and relative returns for the Healthcare sector within the domestic equity market as investors are eventually forced to chase performance. Be it Healthcare, Consumer Staples, Utilities or REITs, the fact that some 85-90% of active managers underperformed their benchmarks last year implies that not enough investors are appropriately allocated to these #Quad4 outperformers.


    In our conversations with investors, we often get valuation-based pushback on our bullish bias on the aforementioned sectors. As you probably know by now, valuation plays a very limited-to-negligible role in our tactical asset allocation process. What we are trying to do is isolate those asset classes, regions, countries, sectors and style factors that can do one or both of the following:


    1. Help you preserve capital over the intermediate term
    2. Help you generate positive absolute and relative returns over the intermediate term


    What we noticed both empirically and through trial and error (see: Keith’s 10yrs on the buy-side), valuation typically does not play much of a role on in managing intermediate-term macro risks anyway.


    While we agree that [perceived] market dislocations generally correct themselves over time and that allocating to “cheap” assets tends to provide for the best prospective returns in the strategic asset allocation process, we can’t say we agree with the premise that valuation-based investments are inherently more attractive on shorter durations (e.g. within a year or less).


    But don’t just take our word for it. Listen to the market:


    The following four charts show the TTM, trailing 6M, trialing 3M and YTD performance for each of the S&P 500 GICS Level 1 Sectors and Level 4 Sub-Industry indices on the respective y-axes. On the x-axes, we show the ex-ante P/NTM E ratio for each index (i.e. the P/NTM E ratio at 12 months ago, 6 months ago, 3 months ago and at the start of the year). We show this on a percentile basis to improve visual clarity. What you’ll quickly note is the positive sloping relationship between ex-ante valuation and performance in each chart.










    Cheap gets cheaper and expensive gets more expensive over the intermediate term as, one-by-one, investors who said along the way, “I missed the move” or “I can’t buy/selll ‘em up/down here” are forced to capitulate at higher/lower prices.


    ***CLICK HERE to download the full TACRM presentation.***



    Global #Deflation: Amidst a backdrop of secular stagnation across developed economies, we continue to think cyclical forces (namely #StrongDollar driven commodity price deflation) will drag down reported inflation readings globally over the intermediate term. That is likely to weigh heavily upon long-term interest rates in the developed world, underpinning our bullish outlook for U.S. Treasury bonds.


    The Hedgeye Macro Playbook (1/29)


    #Quad414: After DEC and Q4 (2014) data slows, in Q1 of 2015 we think growth in the US is likely to accelerate from 4Q, aided by base effects and a broad-based pickup in real discretionary income. We do not, however, think such a pickup is sustainable, as we foresee another #Quad4 setup for the 2nd quarter. Risk managing these turns at the sector and style factor level will be the key to generating alpha in the U.S. equity market in 1H15.


    The Hedgeye Macro Playbook (1/26)


    Long #Housing?: The collective impact of rising rates, severe weather, waning investor interest, decelerating HPI, and tighter credit capsized housing in 2014.  2015 is setting up as the obverse with demand improving, the credit box opening and 2nd derivative price and volume trends beginning to inflect positively against progressively easier comps. We'll review the current dynamics and discuss whether the stage is set for a transition from under to outperformance for the complex.


    HOUSING: Pending Home Sales | Pick Your Colored Glasses (1/29)


    Best of luck out there,




    Darius Dale

    Associate: Macro Team


    About the Hedgeye Macro Playbook

    The Hedgeye Macro Playbook aspires to present investors with the robust quantitative signals, well-researched investment themes and actionable ETF recommendations required to dynamically allocate assets and front-run regime changes across global financial markets. The securities highlighted above represent our top ten investment recommendations based on our active macro themes, which themselves stem from our proprietary four-quadrant Growth/Inflation/Policy (GIP) framework. The securities are ranked according to our calculus of the immediate-term risk/reward of going long or short at the prior closing price, which itself is based on our proprietary analysis of price, volume and volatility trends. Effectively, it is a dynamic ranking of the order in which we’d buy or sell the securities today – keeping in mind that we have equal conviction in each security from an intermediate-term absolute return perspective.

    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 80.52%
    • SHORT SIGNALS 78.68%

    BREAKING: GDP Slowed, Yep

    Client Talking Points


    Shanghai Composite was down for 4 straight days (-5.4% correction to -2.8% year-to-date) as Chinese growth slows. Shanghai Composite is actually underperforming the U.S. stock market. China has very bad economic fundamentals, and just to reiterate, no we don’t think growth is accelerating in China. 


    The U.S. Dollar is signaling that consensus was wrong on GDP, the actual number is closer to 2%. GDP is much more reflective of what the bond market has been telling you. Yen wasn’t going down anymore (in U.S. Dollars) pre the GDP print at $117.66. The immediate-term risk range for the U.S. Dollar is USD 92.63-96.11.

    UST 10YR

    Breaking: inline with Hedgeye's forecast, 2014 U.S. GDP was closer to 2% than 5%. Bond Yields are crashing and have been reflecting the rate of change in U.S. growth. The rate of change of U.S. growth got you paid on TLT, with the long bond (TLT) up +7.9% year-to-date vs. -1.83% for the SPX.

    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


    How are things working out for Japanese QE?

    1. Household spending -3.4% y/y

    2. Housing starts -14.7% y/y



    No one can whistle a symphony. It takes a whole orchestra to play it.

    -H.E. Luccock


    Ticket prices for Super Bowl XLIX have skyrocketed, from an average of $2,799 the day of the AFC Championship to $4,594 (Wednesday) an increase of 64%.

    January 30, 2015

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    CHART OF THE DAY: (En Fuego) U.S. Household Formation

    CHART OF THE DAY: (En Fuego) U.S. Household Formation - HH formation


    Editor's note: This is a brief excerpt from today's Morning Newsletter written by Hedgeye U.S. macro analyst Christian Drake.


    • Household Formation:  The same survey data showed household formation was en fuego in 4Q.  As can be seen in the Chart of the Day below, the CPS/HVS survey estimated that the total number of households grew by 2.0MM in December vs a year earlier, the largest yearly change since July 2005. On a rate of change basis, year-over-year growth accelerated to +1.4% in 4Q – up from 0.4% growth in the Jan-Sept period and the first material acceleration in 8 years. 

    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.