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MACAU FEBRUARY DETAIL

Takeaway: February GGR down 49%. Trends still worsening - 2015 EBITDA set to disappoint.

CALL TO ACTION

GGR fell 49% - slightly better than expected as of last week but well below expectations prior to the start of the month.  We remain negative on the near and intermediate Macau outlook. Sequential trends continue to worsen and unless volumes pick up sequentially, March could fall 35-40%, despite a relatively easy comparison. For the full year, we are projecting GGR to decline 24% YoY which would disappoint investors and drive company earnings and EBITDA estimates much lower than current Street estimates.  

 

Please see our detailed note:  

http://docs.hedgeye.com/HE_Macau_3.3.15.pdf


Consumer Tax Cut #Deflation Persists

Client Talking Points

USD

Higher-highs for the U.S. Dollar Index yesterday drove the CRB Index down another -0.9% (-3.4% year-to-date) and Energy stocks continued to lag as U.S. equity sector styles focused on consumption continue to crush (XLY +6.6% year-to-date vs. SPX +2.8%).

OIL

Oil is whipping around as Oil Volatility remains wicked high (OVX = 54 after topping at 64), but Dollar Down days (today after signaling overbought yesterday) give Oil these bounce bids, up +1.3% this morning to $50.23 with a risk range of $48.04-52.23.

UST 10YR

The UST 10YR experienced another rate ramp yesterday (Bunds and JGBs up 10% too, in yield % terms!) to 2.08% this morning – the risk range has widened to 1.84-2.16% ahead of Friday’s jobs report, so this can get more volatile, faster, now. 

Asset Allocation

CASH 43% US EQUITIES 10%
INTL EQUITIES 10% COMMODITIES 0%
FIXED INCOME 29% INTL CURRENCIES 8%

Top Long Ideas

Company Ticker Sector Duration
YUM

Our bullish thesis on Yum! Brands is slowly becoming more mainstream, as activist talk has recently heated up. Management implemented a shareholder friendly amendment to the company’s by-laws that will permit a shareholder, or group of shareholders, with 3% or more ownership of common stock (for three years or more), to nominate directors representing up to 20% of the board. This is good news for several reasons: 1) an activist may be involved in the name 2) shareholders are speaking up 3) management is feeling the pressure and 4) management is open to adopting more shareholder friendly policies. We continue to believe there is significant upside here despite the stock’s strong recent outperformance.  This stock is one major announcement away from hitting $95.

PENN

Penn National Gaming is the best way to play improving domestic regional gaming trends due to its superior operational management and unit growth opportunities. Catalysts include positive estimate revisions, the opening of the first Massachusetts casino in June, and industry leading earnings growth in 2015 and 2016.

TLT

Low-volatility Long Bonds (TLT) have plenty of room to run. Late-Cycle Economic Indicators are still deteriorating on a TRENDING Basis (Manufacturing, CapEX, inflation) while consumption driven numbers have improved. Inflation readings for January are #SLOWING. We saw deceleration in CPI year-over-year at +0.8% vs. +1.3% prior and month-over-month at -0.4% vs. -0.3% prior. Growth is still #SLOWING with Real GDP growth decelerating at -20 basis points to +2.5% year-over-year for Q4 2014.The GDP deflator decelerated -40 basis points to +1.2% year-over-year.

 

Three for the Road

TWEET OF THE DAY

2015: Germany +14.8%, Italy +17.7%, EuroStoxx50 +14.8% YTD

@KeithMcCullough

QUOTE OF THE DAY

There is a fine line between fishing and just standing on the shore like an idiot.

-Steven Wright

STAT OF THE DAY

Copper is down -1.6% this morning, down -6.4% year-to-date. Copper remains one of the most obvious ways to play our top theme, Global #Deflation.


Is Keith McCullough Right About News Bias at Bloomberg?

It was was originally supposed to be a humorous, little Friday morning poke at billionaire Mike Bloomberg's news organization...

Is Keith McCullough Right About News Bias at Bloomberg? - 45

 

But the polarizing results of this recent Hedgeye/Polstir poll (see below) are startling to say the least. The clear takeaway suggests that a large swath of people don't have a whole lot of confidence in Bloomberg's reporting of U.S. economic news and events.

 

When asked the question, "Do you think Mike Bloomberg's company tells the truth about the U.S. economy?" an unbelievable 75% of respondents voted NO. While the poll sample is obviously small, it certainly raises eyebrows about the perceived veracity of Bloomberg's version of economic events.

 

One is left wondering what it all means... Would the numbers hold up and be in the same ballpark if there was a broader sample survey?

 

Here's the poll:


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CHART OF THE DAY: One of the Most Obvious Ways to Play Global #Deflation

CHART OF THE DAY: One of the Most Obvious Ways to Play Global #Deflation - 03.03.15 chart

 

Editor's note: This is an excerpt from today's Morning Newsletter written by Hedgeye CEO Keith McCullough. Click here to subscribe today.

 

To review why I kept these “SELL” ideas on versus others:

 

  1. Copper – down -1.6% this a.m. (-6.4% YTD) remains one of the most obvious ways to play our top theme, Global #Deflation
  2. JPM – down -1.3% YTD is in 1 of the 2 US Equity Sector Styles I like the least (Financials – sector ETF -0.8% YTD in an up tape)
  3. FL – down 2 cents YTD is on our Best Ideas SELL list (Brian McGough is the analyst, ask our team for his deck for details)

 


Shaping Buffett's House

“You shape your houses and then your house shape you.”

-Winston Churchill

 

William Thorndike introduces Warren Buffett in chapter 8 of The Outsiders (pg167) as “The Investor CEO.” He uses the aforementioned (and ironic) Churchill quote then cites Berkshire’s sculptor himself: “being a CEO made me a better investor, and vice versa.”

 

Although I’ve only been a CEO for 7 years (and, at 40 years old, I’m a very young one at that!), I definitely agree. Running a company is a lot different than generating a hedge fund P&L. Both experiences have taught me invaluable lessons about life and investing.

 

While Buffett’s former #1 Rule in Investing was “don’t lose money”, he doesn’t really say that anymore when promoting his positions and politics on CNBC. To be clear though, Buffett became Buffett by selling high and buying low.

 

By 1987, in advance of the October market crash, Buffett had sold all of the stocks in his portfolios, except for his 3 core positions. After his Capital Cities transaction, he did not make another public market investment until 1989” (pg175), when he bought Coke (KO).

 

The house that shapes Buffett’s commentary today is not the See’s Candies he bought in 1972 for $25 million. Buffett, due largely to his brilliant performance and compounded returns, is now the stock market. His #1 Rule now is to protect that house.

 

Shaping Buffett's House - b9

 

Back to the Global Macro Grind

 

I’m calling that out as there’s plenty of video circulating on CNBC’s backslapping network this morning, replaying a fawning Becky Quick with Mr. Chuckles. If you were able to play the mainstream media to your advantage like this, you’d be chuckling too!

 

Here’s my 1 minute video on the matter: https://www.youtube.com/watch?v=60zMHvjybZI

 

Another reason to callout the chart-chasing buy-high-and-hope-to-sell-higher strategy (commonly called momentum and/or performance chasing) is that the US stock market closed at its all-time high of 2117 (+2.8% YTD) yesterday.

 

All-time, as I like to remind time-series fans, is a long time. And you generally don’t want to have the all-time high as your invested cost basis. You can ask some of the private equity firms who bought upstream and/or MLP Energy assets with a $105-120 price deck about that.

 

While it might be nice to avoid Buffett’s advice about having no shorts on “when the tide rolls” out, I did have 3 of them on in Real-Time Alerts yesterday, so it’s worth calling all 3 of them out as things that didn’t work for me, in that product, yesterday:

 

  1. Copper (JJC)
  2. J P Morgan (JPM)
  3. Foot Locker (FL)

 

Yep, while all 3 of these securities have sucked in 2015 YTD (i.e. they have negative returns), I guess I was the one who sucked having them on the short side yesterday. If you’re not sucking sometimes, you don’t have mirrors in your house either.

 

To review why I kept these “SELL” ideas on versus others:

 

  1. Copper – down -1.6% this a.m. (-6.4% YTD) remains one of the most obvious ways to play our top theme, Global #Deflation
  2. JPM – down -1.3% YTD is in 1 of the 2 US Equity Sector Styles I like the least (Financials – sector ETF -0.8% YTD in an up tape)
  3. FL – down 2 cents YTD is on our Best Ideas SELL list (Brian McGough is the analyst, ask our team for his deck for details)

 

The other thing that went wrong for me yesterday was another one of these counter-TREND moves in US (and global) interest rates. While many might quibble with the simple calculation of +10% move in German Bund and Japanese Government Bond Yields (when you devalue to zero, that is the math), the move on the long-end of the US rates curve is where I seem to have the most lovers and loathers.

 

After dropping -12 basis points last week, the 10yr US Treasury Yield bounced +9 beeps (basis points) on the day yesterday. That brought back a whole host of tweeters who have been shorting the Long Bond via TLT for, well, the last 25% of the up move (since January of 2014).

 

One mainstream economic headline that hit the tape was the ISM slowing in FEB to 52.9 versus the initially reported 53.5 for JAN (which was then revised lower). So, other than it not being the worst monthly decline since OCT 2008 (like the PMI was on Friday), I don’t see any fundamental economic reason to be selling Long-duration, low-volatility, high return bonds.

 

That said, we need to risk manage the range, and here’s some time and space to consider:

 

  1. Immediate-term TRADE risk range for the 10yr Yield has widened to 1.84-2.16%
  2. Intermediate-term TREND resistance for the 10yr Yield = 2.39%
  3. US monthly Jobs Report is due out on Friday and that will definitely move the bond market

 

On a jobs miss, I think you test the low-end of that immediate-term risk range. On a jobs beat, I think you test the high end. The house that I built alongside my teammates @Hedgeye won’t make our call any more complicated than that.

 

Our immediate-term Global Macro Risk Ranges are now:

 

UST 10yr Yield 1.84-2.16%
SPX 2096-2122

VIX 12.80-16.39

USD 94.63-95.81

Oil (WTI) 48.04-52.23
Copper 2.55-2.73

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Shaping Buffett's House - 03.03.15 chart


Hedgeye's Macro Show with Keith McCullough

In case you missed it, here is the replay of Hedgeye's Macro Show with CEO Keith McCullough.  

 

 


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 80.33%
  • SHORT SIGNALS 78.51%
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