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Why the Heck Is the U.S. Dollar Up So Much Today?

Takeaway: We think #deflation is the root cause of U.S. dollar appreciation.

At 8:25am EST, the DXY was trading at 94.492. It’s since shot up in a straight line in conjunction with the release of fairly dovish inflation data. Insert Viagra joke HERE:


Why the Heck Is the U.S. Dollar Up So Much Today? - 2 26 2015 11 05 40 AM

Source: Bloomberg L.P.


Why the Heck Is the U.S. Dollar Up So Much Today? - CPI


So why the heck is the dollar up so much today? One possible explanation Keith and I are discussing on the desk is the stabilization in Core CPI in JAN. Perhaps this is a harbinger of prospective stabilization in Core PCE Inflation, which will be released Monday morning at 8:30am EST.


Why the Heck Is the U.S. Dollar Up So Much Today? - CORE CPI


Why the Heck Is the U.S. Dollar Up So Much Today? - CORE PCE


If stabilization in the Fed’s preferred inflation metric turns out to be the case, that would allow the Fed to look through the persistent weakness in Headline CPI, which should bottom in/around JUN (assuming no material incremental weakness in commodity prices). I believe the word you’re looking for is “transitory”...


Why the Heck Is the U.S. Dollar Up So Much Today? - HRM Commodity Price Sample YoY vs. CPI YoY


Why the Heck Is the U.S. Dollar Up So Much Today? - CRB YoY vs. CPI YoY


But is that an accurate assessment of what is actually occurring? Looking at Fed Funds futures curve, rates have only moved up +2bps and +3bps on the JUL ’15 and DEC ’15 maturities, respectively, on the day. That would seem to support another explanation Keith and I just discussed: today’s melt-up in the DXY isn’t all about a hawkish Fed.


Why the Heck Is the U.S. Dollar Up So Much Today? - FFF JUL  15


Why the Heck Is the U.S. Dollar Up So Much Today? - FFF DEC  15


So then, what is driving today’s bout of material USD strength?


We think it’s about #deflation. And the realization that real interest rates in the U.S. should continue to move higher, not lower, over the intermediate term. What you’re seeing today is not necessarily unlike what occurred in Japan for much of the past 30 years as the currency strengthened amid persistent deflation despite various Policies To Inflate.


Why the Heck Is the U.S. Dollar Up So Much Today? - 9

Source: Bloomberg L.P.


We reiterate our intermediate-to-long term bullish bias on the U.S. Dollar, having been there since last August. Please don’t short the EUR down here, though. The former is pinned at its immediate-term TRADE line of support at 1.12. The USD/JPY cross has a full big figure to go to its immediate-term TRADE line of resistance at 120.33.




Darius Dale

Associate: Macro Team

McCullough: Central Bankers Have Lost Control, Setting Stage For Market Crash


In this brief excerpt from today's Morning Macro Call, Hedgeye CEO Keith McCullough says the Fed has "certifiably lost control" and reveals what he’s seeing now which could ignite a significant market correction.


Watch today's full 30-minute Morning Macro Call here.


Takeaway: Strong quarter and solid guidance. Story still intact.


  • 4Q REVPAR:  +10.3% - driven by 21k more corporate group nights vs last year
  • 4Q: Transient room nights up 7.9% YoY; transient ADR up $7.25 or 3.9% YoY
  • Bought National Harbor 192 room hotel in December:  Reflagged under AC brand.   Reopening expected by end of 1Q 2015
  • 2Q typically the best quarter
  • 4Q 2014:  booked 870k gross room nights for all future years +12.7% YoY. booked 775k net room nights +21.6% YoY.  December was best production month on record. Best bookings quarter since 2005 (2nd best ever)
  • Group segment very healthy
  • Aim for company properties to have a little over 80% occupancy
  • Opryland: room renovation will be unveiled in 2Q 2015
  • 2015 guidance:  have slightly more group nights booked than 2014. 
  • Group:  Prospects up 8% and tentatives up 10%.  Will have material impact on 2016-2017.  
  • 2016 Group book revenues up 5% YoY 
  • Raised menu pricing in 2014.  Banquets particularly did well.
  • Create value by settling convertible notes for cash and buy back stock
  • Q4: Modest increase in attrition/cancellations 
  • 2013 corporate EBITDA comp: positively impacted for $3.4m due to change in corporate deferred compensation plan.
  • Plan to complete repurchase of warrants by 1Q 2015 
  • AFFO: no longer deducting capex
  • New dividend policy: “The Company plans to pay a quarterly cash dividend to shareholders in an annualized amount equal to at least 50% of Adjusted Funds from Operations (Adjusted FFO) less maintenance capital expenditures, or 100% of REIT taxable income, whichever is greater.”
  • EBITDA guidance for AC hotel: $2-3m
  • 2Q 2015 and 4Q 2015:  strongest revenue and EBITDA growth quarters
  • 1Q 2015 impacted by norovirus outbreak at Opryland and weather effects
  • 1Q 2015 total REVPAR guidance: flat

Q & A

  • Limit group nights to have higher transient business? Want to leave open weekends/holidays opportunities for transient business.
  • Gaylord National:  market will continue to grow. 
  • Nashville:  bought a building 9 months ago in a great location. Looking to build a high-quality entertainment venue.
  • Gaylord Texan:  66k more group room nights on the books than this time last year.  Will have an excellent 2015. 
  • DC:  property will continue momentum.  Well-positioned.  
  • Orlando:  humming along. Expect slight growth YoY 
  • Will look potential asset purchases - want the right multiple

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.

Keith's Macro Notebook 2/26: Germany | UST10YR | USD

Hedgeye CEO Keith McCullough shares the top three things in his macro notebook this morning.

LEISURE LETTER (02/26/2015)




  • Feb 26: RHP 4Q CC 10:00am  pw: 73087325
  • Mar 5: The 3rd Session of the 12th National People’s Congress (NPC), China’s top legislature will convene in Beijing


MCRI - announced details of its long-awaited project intended to transform its Black Hawk casino into a full-fledged resort. The total Monarch expansion is expected to cost $285 million to $295 million, which will double casino space, triple garage parking to 1,500 spaces and add a 500-room hotel and three more restaurants. So far, $21 million has been spent.

CEO John Farahi said MCRI is adding the hotel and resort amenities to an underserved market that has only 928 casino hotel rooms to serve the Denver metro area.

The property is currently in the middle of a three-phase $110 million to $112 million upgrade that is expected to be completed by the third quarter and will increase the number of slot machines by 13 percent to 710.

The casino and hotel expansion will be complete in late 2017, with the casino and new restaurants opening while final hotel floors are being completed.

The current upgrade and coming expansion will total $395 million to $407 million, of which $281 million to $293 million is still to be spent.

Takeaway:  PNK/ASCA Black Hawk will face greater competition


GTK/SGMS -  Massachusetts' Lottery is accepting bids to replace 8,500 of GTECH’s 18-year-old lottery terminals, the oldest in the nation. Lottery officials are hoping to spend less than $65.5 million to replace the machines. They expect bids from GTK, Intralot and Scientific Games.



H -  On February 24, 2015, the Company entered into a Purchase and Sale Agreement (each, a "Purchase and Sale Agreement") with each of (i) RKMP H Company LP, a Delaware limited partnership owned indirectly by a trust for the benefit of certain of the lineal descendants of Daniel Pritzker, and (ii) TGFJ H Company LP, a Delaware limited partnership owned indirectly by a trust for the benefit of Daniel Pritzker, pursuant to which the Company agreed to purchase an aggregate of 750,000 shares of Class B Common Stock at a price of $59.5389 per share, which represents the Volume Weighted Average Price for the Class A Common Stock for the three (3) trading-day period ending February 23, 2015 as reported by Bloomberg, for an aggregate purchase price of $44,654,175. 

Takeaway: H continues to surprise on the upside with the buyback


CCL - Princess is trimming capacity in Europe and Alaska for 2016



RCL - Harmony of the Seas features water slides, larger cabins, and new specialty restaurants.


Takeaway: Not as exciting as Quantum


Beijing talks on visitor cap not yet scheduled: Macau govt

Maria Helena de Senna Fernandes, director of the Macau Government Tourist Office said, “We should focus on thinking about [how to deal with] so many visitors entering the city during holidays…the most important thing is how to improve our tourism environment and minimize the impact on local residents’ lives. Visitors who come to Macau want to have a comfortable trip…they don’t want to see so many people, they want to have a relaxing trip.”


Ms Senna Fernandes said that before any cap was introduced, the government would conduct a public consultation and also discuss the issue with representatives from the city’s tourism industry.


Macau’s Secretary for Social Affairs and Culture, Alexis Tam Chon Weng  old reporters that the Macau government planned to discuss soon the issue with China’s central government. He said no cap had yet been decided and that limits could vary for different seasons of the year. Mr Tam added he hoped the cap could be introduced this year. 


Takeaway: It's not just premium mass and VIP under government pressure...

CNY visitation - Mainland visitation from 2/19/2015-2/25/2015 increased 5.6% over the respective CNY period last year.  Overall visitation increased 3.3% over the respective CNY period last year.


LEISURE LETTER (02/26/2015) - cnyaa


Takeaway: In-line with expectations


Jan visitation - overall visitation in January fell 1.5% YoY - the 2nd consecutive monthly decline.  Mainland China visitors declined 1.2% YoY, its 1st drop since March 2013.


LEISURE LETTER (02/26/2015) - mva


Mainland Chinese HK visitation- The number of mainland Chinese visitors to Hong Kong during the Lunar New Year holidays fell for the first time in about 20 years as they have felt increasingly unwelcome amid political unrest in the city. The drop, though, was a mild 0.3% over the first three days of the holiday.


"If we have to restrict or decrease the numbers of mainland Chinese coming to Hong Kong then we must continue to discuss this with (China)...this is a difficult task," he said.  


Takeaway:  20 years is a long time. HK-China tensions remain.


Chinese: 5m traveled abroad in Spring Festival



LEISURE LETTER (02/26/2015) - cn


Takeaway: South Korea has been a hot spot


LV McCarran airport traffic - gained 0.3% YoY in January.

Takeaway: Continuing winning streak of 17 months, barely


Macau CPI - Jan 2015 increased by 4.75% YoY but edged down by 0.03% MoM 


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 anegative pivot here looks increasingly likely in 2015.


KSS - Initial Reaction to the Print

Takeaway: Guidance was slightly weak. But not as weak as it should be. Numbers need to come down -- a lot.

1) Results Slightly Better…The 3.7% comp was already reported, which resulted in a $2.2bn pop in KSS EV (stock from $60 to $70). Nothing new on that front today. Gross margins looked slightly less bad – down 14bps.  But the comp allowed KSS to leverage SG&A growth of 2.4%, which is rare for this company. Combined with lower D&A, lower tax rate, and fewer shares (a positive), KSS leveraged the 3.7% comp into 7.4% EBIT growth, and 17.9% EPS growth – KSS’ fastest EPS growth rate in almost 5-years.

2) But Guidance Slightly Worse – Just 4 months ago KSS issued long-term guidance of 3% comps through 2017. 2015’s guidance of 1.5%-2.5% isn’t 3%. Coming off a solid 4Q, with such supposed company-specific momentum in its business on top of macro/weather tailwinds, we wonder why so conservative. It seems pretty soon to temper expectations.

3) While the market is telling us that we’re flat-out wrong in saying this, we think that this is the last year KSS earns over $4.00. It took a lot of financial engineering to get there: D&A $886 vs. initial guidance of $950 and most recent guide of $900, and a sub 36% tax rate got them enough to earn $4.24 for the year. Without these benefits KSS would have been seen negative EPS growth on a 7% share count reduction. We think that the incremental customer acquisition with its new rewards plan is extremely costly, not to mention the underlying drivers for the change in the plan are grossly misunderstood by the Street (including the risks to credit income -- 24% of EBIT).  To buy KSS here you need to believe in $6 earnings power. That’s simply not going to happen. Real EPS power is closer to $3-$3.50. That’s a stock of around $40 – 42% below where it is today. The risk/Reward looks solid to us on the short side here. 

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%