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Got Reasons?

This note was originally published at 8am on February 11, 2015 for Hedgeye subscribers.

“The heart has its reasons, of which reason knows nothing.”

-Blaise Pascal

 

Leave it to a 17th century mathematician/physicist/philosopher (who was raised by a socialist tax collector in France) to nail what Mr. Macro Market thinks about your investment and risk management reasonings – he does not care.

 

Of course “he” could be a she – and if the market gods ever let me know on gender, I’ll let you know. The more important point I’m trying to make about markets is that they really don’t care about your political, social, or emotional leanings either.

 

They don’t care about your research, what school you went to, or your neighbor’s brother’s aunt’s dog. Macro markets care about what they care about – and those things are constantly changing.  Your #process needs to embrace that uncertainty.

 

Got Reasons? - complacency cartoon 02.10.2015

 

Back to the Global Macro Grind

 

Got reasons for what is moving the US Equity futures intraday these days?

 

  1. Is it another bailout or a blowup in Greece?
  2. Is it a counter-TREND move higher in US Treasury Bond yields?
  3. Is it the Correlation Risk relationship between US Dollars and Oil?

 

Your portfolio may be affected by one, none, or all of these reasons. If you can tell me which one of them is going to trump all of the others, please tweet me – because, in the very immediate-term, I do not know.

 

Here’s what Mr. Macro Market thinks about the upside/downside in what I call my immediate-term Risk Ranges:

 

  1. Greek Stock Market (Athens General Share Index) = 680-883
  2. UST 10yr = 1.62-2.05%
  3. WTI Oil = $45.04-54.78

 

In other words, what just happened in all 3 of these counter-TREND bounces (newsflash: Greece, Bond Yields, and Oil have been crashing for the last year) was that they all recently tested the top-end of their respective risk ranges.

 

Unlike who I affectionately call Chart Chasers, Mo Bros, etc., I’m a fader. I don’t chase prices – instead, I try my best to:

 

  1. Have an intermediate-term TREND research view
  2. Sell/Short at the top-end of the immediate-term TRADE range
  3. Buy/Cover at the low-end of the immediate-term TRADE range

 

The least complicated part about this research and risk management process are points 2 and 3. It’s just math. The math generates the immediate-term ranges. It’s both dynamic (changing alongside price, volume, and volatility) and non-linear.

 

The most complicated is point number 1. What is your trending research view? Does it whip around daily? Or do you have a Bayesian inference #process that helps you change both fast, and slow, as critical rates of change undergo phase transitions?

 

From an intermediate-term research TREND perspective, here’s what I think:

 

  1. Greece remains bearish and broken
  2. Long-term Bond Yields are bearish inasmuch as our 1H 2015 inflation forecast is
  3. Oil remains a bearish TREND susceptible to ongoing Global #Deflation risk

 

Yep, there are multiple factors and multiple research and risk management durations incorporated in what I think. And no, Mr. Macro Market doesn’t care about that. But I certainly respect what he/she thinks, and try to listen to him/her very carefully.

 

Our immediate-term Global Macro Risk Ranges are:

 

UST 10yr Yield 1.62-2.05%
SPX 2038-2085

DAX 10598-10990
Shanghai Comp 3026-3201

VIX 15.81-20.89
USD 93.67-95.49

Oil (WTI) 45.04-54.78

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Got Reasons? - 02.11.15 chart


SJM 4Q 2014 CONF CALL NOTES

Takeaway: 4Q EBITDA missed expectations due to higher costs and revenue mix. Jan/Feb performing better than market.

CONF CALL

  • Visitation from Mainland has continued to grow
    • High end players have either less gaming budget or visiting less often
  • Do not expect V-shaped recovery in near-term
  • 2015 Wage increase: 5% across the board and some loyalty benefits
  • 5% of rooms will be out of service in the next couple of years
  • On schedule to open Lisboa Palace in 2017. Currently 600 workers there
  • 2015 capex:  $7.1bn ($5.8bn -construction for Lisboa Palace); will be funded from cash
  • Will consider financial options after completion of Lisboa Palace

 

Q & A

  • Staff retention:  3,600 subscribe to bonus accumulation program.  Will be $45m/ year
  • Dividend payout: 70% in-line with what they have said before
  • New Mainland China visitation restriction possibility: both HK and Macau concerned. May address it in upcoming CPCC meeting.  Impact may be minimal.
  • Grand Lisboa margins:  low because of revenue mix and statutory holiday payments
  • Why satellite RC volume up?  Solid junket operators 
  • Casino Lisboa:  hold rate - 3.26% in 4Q, up from 2.77% in 3Q
  • Jan market share: improvement in both vip and mass
  • Promotional $ as a % of revenue:  5.9%...want to keep in the 4-5%; have to reinvest in mass business
  • February CNY:  market fundamentals remain weak but SJM doing better than market

Hedgeye's Morning Macro Call with CEO Keith McCullough

On today's Morning Macro Call, Hedgeye CEO Keith McCullough shares his Top Three Things, welcomes Financials Sector Head Josh Steiner via phone to discuss the current housing setup, and takes questions from viewers. 

 

 

 

 


the macro show

what smart investors watch to win

Hosted by Hedgeye CEO Keith McCullough at 9:00am ET, this special online broadcast offers smart investors and traders of all stripes the sharpest insights and clearest market analysis available on Wall Street.

SINGAPORE Q4 REVIEW: A TALE OF TWO SENTIMENTS

Takeaway: MBS was lucky, which resulted in share gains but VIP volumes remain the key risk.

CALL TO ACTION

LVS and Genting struck different chords when describing the Singapore market performance and outlook.  Luck was definitely on the side of LVS’s MBS in Q4, but overall, Genting’s assessment is probably more accurate.

 

While Singapore generated GGR growth in 4Q 2014, it was mainly due to easy YoY comps and a high hold percentage (good luck for the house).  On a hold-adjusted basis, Singapore 4Q GGR declined for a 5th straight quarter.

 

Mass volume growth is stable at best.  But most disconcerting is the accelerating decline in VIP volumes, indicative of systemic risks in the market, particularly those stemming from the high-end Mainland Chinese. 

 

Please see our detailed note: http://docs.hedgeye.com/HE_SING_4Q_2014.pdf


XLU: Removing Utilities from Investing Ideas

Takeaway: We are removing Utilities from Investing Ideas.

Interest rates are falling today post dovish Fed comments, so we’re selling Utilities (XLU) today on the bounce. We think there are better opportunities (like Penn Gaming) to be buying on weakness. 

XLU: Removing Utilities from Investing Ideas - 356


PENN: Adding Penn Gaming to Investing Ideas

Takeaway: We are adding Penn Gaming to Investing Ideas.

NoteThe excerpt below was written earlier today by Hedgeye CEO Keith McCullough. Stay tuned for further updates from our Gaming, Lodging & Leisure sector head Todd Jordan.

 

PENN: Adding Penn Gaming to Investing Ideas - rrr

 

Janet Yellen's testimony today was, on the margin, dovish. I think this keeps the lower-rates-for-longer Macro Theme in play and also augments our bullish Q1 (Quad1) view of US domestic consumption. 

 

One of the best ways to play that Macro Theme is via regional gaming stocks (where both gas prices and accelerating housing trends are bullish for their core consumer).

 

As I pointed out in a previous note, Todd Jordan has already added Penn Gaming to our Institutional Research Best Ideas list. So that's not new today - the stock testing the low-end of its risk range on no volume is...

 

To review Jordan's bull case, while he's not ready to call a V-shaped regional gaming recovery, due to a variety of factors the numbers are looking a lot better. PENN had a solid Q4. January was one of the best months in regional gaming since well before the “Great Recession” began in 2008. 

 

Buy Best Ideas (on red) when testing the low-end of the risk range.

KM



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