Warrior Tape!

“The two most powerful warriors are patience and time.”



I love that quote. When I think about risk managing my firm, the Global Macro tape, and what I need to improve upon – as I get older, I usually come back to patience and time.


Can I maintain opposing thoughts, across multiple durations, and still operate objectively? Can I help both my team and yours understand the difference between an immediate-term TRADE risk and an intermediate-term TREND?


To me, the words patience and time don’t have to imply “long-term investor.” To be a long-term active risk manager (someone please market their fund as doing so!) you have to be patient so that, sometimes, you can act quickly.


Warrior Tape! - hrg


Back to the Global Macro Grind


Since centrally planned markets move quickly, why wouldn’t you, sometimes, risk manage quickly? As I’ve been sitting here this morning the S&P futures have gone from down 2 to down 9, to down 2 (on a Chinese rate cut), to down 6 twenty minutes later.


Yeah, that’s about as free-market as the Nikkei being jammed +2% into the bell on a “rumor that the BOJ is going to add another dovish member.” Lol! Seriously, like Japan hasn’t been dovish for 2 decades – they are printing 90 TRILLION Yens a year!


To be a warrior of this actively managed tape, in addition to patience and time, you have to have a lot of weapons at your disposal. One of the biggest ones is historical context. Another is keeping yourself together, mentally.


If you have neither context nor emotional control, you will get wrecked.


To review this most recent 3-day counter-TREND move in macro markets:


  1. It’s all about the Dollar
  2. Reversing an epic 6 month #StrongDollar move started with a bad US GDP print on Friday
  3. Down Dollar’s counter-TREND move picked up momentum when the ISM # slowed on Monday
  4. By Tuesday, the EUR/USD was headed to the top-end of its $1.11-1.14 risk range
  5. USD had one of its biggest DOWN days in a year (yesterday)
  6. CRB Index had one of its biggest UP days in a year, closing +3.2%


Yeah, Oil ramped. I get it. If you knew what a Down Dollar move would do to both Oil and the Commodities complex, you should have absolutely got that right too. To remind you where the trending probabilities were heading into this 3-day move:


  1. USD 3-month inverse correlation to CRB Index = -0.91
  2. USD 3-month inverse correlation to Crude Oil = -0.95
  3. USD 3-month inverse correlation to SP500 = -0.29


Sure, it should have been harder to convince yourself that the SP500 could have a big up move on a Down Dollar move – but it really wasn’t that big – certainly not on an absolute or relative basis to the move in Commodities and their linked stock sectors:


  1. From the Friday closing low of 1995, SP500 = +2.7%
  2. Whereas the CRB Index ramped +6.6% from its low of last week
  3. And Oil & Gas Stocks (XOP) ramped +10.4% in 3 trading days


I know, as long as you bought Greek stocks alongside everything that has been crashing in Commodities and their linked US equity sectors for the last 6 months, you absolutely crushed it yesterday.


I am not saying this is easy. I am simply reminding you how the next crisis looks – because you are already in it. It’s called a market volatility crisis perpetuated by central planners who move into panic mode in a final effort to “smooth” the tape.


Volatility crisis?


Yes, do you know what Oil Volatility (OVX index) did in the midst of crude going from $43 to $53? It went up! And the implied volatility for the SP500 on my intermediate-term TREND duration did not change.


No, I do not profess to know how to call this, play by play, with everyone of these countries randomly coming out with made for Bloomberg ad rev headlines on what they are going to try to do to markets next…


But my longest term risk management conviction remains that this epic central planning experiment of markets will not end well. It will end the way that it is already ending – with confusion and volatility. Have patience with that.


Our immediate-term Global Macro Risk Ranges are now (12 macro ranges with TREND signal in brackets like this are in our Daily Trading Range product):


UST 10yr Yield 1.61-1.82% (bearish)
SPX 1 (neutral)

Nikkei 179 (bullish)

Greece (Athens Index) 674-849 (bearish)

VIX 16.06-21.87 (bullish)

USD 93.45-94.84 (bullish)

EUR/USD 1.11-1.14 (bearish)
YEN 116.03-118.34 (bearish)
WTI Oil 42.35-52.79 (bearish)
Natural Gas 2.60-2.81 (bearish)
Gold 1 (bullish)
Copper 2.42-2.59 (bearish)


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Warrior Tape! - 02.04.15 chart

February 4, 2015

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History's People

This note was originally published at 8am on January 21, 2015 for Hedgeye subscribers.

“History isn’t really about events – it’s the people who really matter.”

-Glenn Beck


That’s from the intro of the latest US #history book I’ve been grinding through, Dreamers And Deceivers by Glenn Beck. And while I’m sure you have your own opinions about Beck, I personally think he’s a great storyteller.


No, Beck isn’t my political idol (here’s a shocker - I don’t have one!). Neither is President Obama. While sometimes fictional, both of these guys tell stories in a way that makes us feel something. That’s what gives birth to a healthy debate about the truth.


Ostensibly, in a free-market democracy it is The People who really matter. Do they believe in this Marxist #ClassWarfare argument of the “rich” vs. the “middle class”? Or does that insult them? I guess after last night’s State of The Union storytelling we’ll see…


Back to the Global Macro Grind


If you listen to just about anyone who loves Obama’s economic policies, they’ll tell you (as he trumpeted last night) that the “economy is back! growing 5%”. That’s obviously fiction, in year-over-year growth rate terms.


When someone throws that 5% number at you, they either A) don’t get that a quarter-over-quarter SAAR reading doesn’t equate to a year-over-year growth rate or B) are trying to obfuscate the number because the uninformed wouldn’t get it anyway.


Here’s the last 4 quarters of US GDP growth, on a year-over-year growth rate basis:


  1. Q413 = +3.1%
  2. Q114 = +1.9%
  3. Q214 = +2.6%
  4. Q314 = +2.7%


And since our macro model (GIP - Growth/Inflation/Policy Model that, using Bayesian Inference, has done as good a job as any research firm in predicting the rate of change in both growth and inflation for the last few years) was:


A)     Bullish on the y/y rate of change in US #GrowthAccelerating for all of 2013 until the growth rate peaked in Q413

B)      Bearish on the y/y rate of change in US growth starting at the beginning of 2014, as Q114 slowed…


I don’t have to make mediocre apologies for getting the rate of change in long-term bond yields right (bullish on #RatesRising in 2013, bearish on rates surprising to the downside in 2014) either.


Instead, being true to evolving the macro debate on Wall St., what I need to do after the #SOTU2015 speech is remind you that:


  1. The bond market (and economic data for December) signaled that the y/y US GDP growth rate slowed again in Q414
  2. Q414 US GDP growth will be reported much lower than “5% growth” within the coming weeks
  3. The annualized (year-over-year) US GDP growth rate for 2014 will be closer 2% than 4-5%


Obama won’t revise his storytelling about economic growth, after that. But #history will.


As you know, you can make a ton of money on the long side of asset prices tied to both A) Policies to Inflate (not to be confused with real economic growth – see 2011 for details) and B) #GrowthSlowing (buy Long Duration Bonds!). #TLT


What’s much more damning to asset prices than the rate of change in growth slowing is the rate of change in inflation #crashing. That’s mainly because asset #bubbles that were perpetuated by easy money Policies to Inflate get crushed by #deflation.


In hindsight, the #deflation risks to certain asset prices have been crystal clear:


  1. Commodities (CRB Commodities Index = 219, new lows, -30% since June 2014)
  2. Debt – and I mean high yield and junk bonds tied to cash flow streams that have implied inflation expectations


That’s why big debtor nations (and the companies who thrive on leverage to inflation in selling prices) try to avoid #deflation like the bubonic plague. #Deflation hammers debtors.


Japan (BOJ) and Europe (ECB) either convince the world that they can create inflation again – or they do not. After cutting his “inflation target” in ½ last night, the BOJ’s Kuroda looks about as confident about inflation as a chart of West Texas Crude Oil.


When this epic and unprecedented central planning experiment ends, it will be the people who signed off on it who are held responsible, not the politically conflicted speech events themselves.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 1.74-1.89%

SPX 1987-2036

Yen 116.12-120.23

Oil (WTI) 45.02-47.66
Gold 1242-1299

Copper 2.48-2.61


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


History's People - Chart of the Day

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Takeaway: Vegas and Macau miss reduced EBITDA estimates. Still no signs of a recovery in Macau despite a better January for Wynn Macau



prepared commentary



  • January 2014: low hold. January 2015: high hold %
  • Q4 was tough; Golden Week in October was difficult (effects of changes in China have had a negative effect on top-end business)
  • January 2015:  no change in VIP business (volumes down hard).  Occupancy was high. Rolex/Louis Vuitton suffered. Made $80m in Jan 2015 (made $70m in Jan 2014).
  • Mass business in Jan 2015 was up 26%
  • Opening in a week or so a new area dedicated to VIP business
  • February should see an improvement of some sort
  • Thousands of Wynn Macau employees expecting promotions and better lifestyle
  • Wage Palace on budget and on time BUT builder last night said that because of a problem in timing of labor construction permits, it will not open before CNY 2016. So, Palace will open in the latter days of 1H 2016.
  • China remains a big question mark
  • Requested 1,000 additional laborers, got 700 laborers instead

Las Vegas

  • $515m in EBITDA in LV in 2014 encouraging   

Q & A 

  • Smoking ban will be extended to VIP. Will have unintended consequences. However, WYNN has some open terraces that will mitigate some of that no smoking impact.
  • Oct/Nov:  low hold in premium mass area ($15m/$20m EBITDA impact)
  • VIP hold was normal
  • Tables will increase by 40 tables (combination of junket tables/mass tables) and will be ready before CNY 2015.  Will be up to 485 tables in a couple of weeks.
  • LV promos:  nothing unusual
  • Mass improvement in January 2015:   Mainly mid to high end mass. Had been targeting 7,000 mid-mass players and the campaign has been very successful
  • Boston budget:  $1.7-$1.75bn
    • $50m/month in revenues for the state of MA
    • Another $50m/month for surrounding communities
    • Financed at LIBOR + 175bps non-recourse
  • Downturn is HK and Mainland China
  • Capital Allocation:  Always thought dividend would increase.  Lots of cash protecting the dividend and big property opening in 2016
  • No mass table reclassification 
  • Chinese people are cautious. There is uncertainty. Campaign against corruption has been a big wake up call.
  • Have eliminated weaker junkets. Only will deal with strongest junkets (SunCity and Guangdong new to the property).  Now do only with 9 junkets (12-13 junkets in the past).
  • Mass promotional spending as higher % of revenues:  not seeing in any major increase in promotional activity 
  • Wynn palace table count: 'common sense and integrity at end of day will be last word on subject'
  • 2 projects facing Wynn LV: Old Frontier hotel (purchased by James Packer). Old Stardust hotel (purchased by Genting).
    • Wynn sees these projects bringing more business to Vegas 
  • Raised Vegas pricing by 18% starting Labor Day
  • Mass margins have been very consistent.  Poor retail performance hurting mass margins since it has least income and highest margins.  
  • Overall EBITDA margins of low 30% target
  • They need 1,500 more laborers to build the Wynn Palace. They have put the request in. 

XLP: Removing Consumer Staples (ETF) from Investing Ideas

Takeaway: We are removing XLP from Investing Ideas.

Please be advised that we are removing Consumer Staples (XLP) from Investing Ideas today.


We added XLP on 9/26/14 for a 8.6% gain versus a 3.3% gain for the S&P 500.


According to Hedgeye CEO Keith McCullough:


This is more of a sell some beta move than anything else. I want to send you a sell signal on US equity exposure here so that I can signal buy, lower.


Fundamentally, International FX exposure to big cap Consumer Staples earnings is a new concern - one we don't get paid to ignore because the USD had a counter-TREND correction.


XLP: Removing Consumer Staples (ETF) from Investing Ideas - 55

Cartoon of the Day: Snow Job

Cartoon of the Day: Snow Job - Earnings cartoon 02.03.2015

Investors aren't exactly digging the fourth quarter earnings season, which has been a disappointment so far.

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