Takeaway: Still trending about -40% for March GGR


Following the slight uptick the week prior, table revenues took another dive down. However, the downturn was anticipated in our model so no change to our -39-40% YoY growth forecast. Looking ahead, the last week of March is typically stronger but the comparison (+28%) is the most difficult of the month.


No change to our cautious investment thesis. Street GGR forecasts have come down and are not far from ours (HE estimate at -24% for 2015). However, we fear the Street is underestimating the Mass revenue deterioration which will adversely impact margins. Consensus EBITDA estimates remain well above Hedgeye.


Please see our detailed note:

Touchdown Deflation

This note was originally published at 8am on March 09, 2015 for Hedgeye subscribers.

“When Gronk scores, he spikes the ball and deflates the ball.”

-Tom Brady


That’s what Brady said about his tight-end, Ron Gronkowski, in a now infamous interview from 2011. He went on to explain that he loves that “because I like the deflated ball, but I feel bad for that football.”


That’s an appropriate metaphor for how the masters of the central planning universe must have felt after Friday’s strong US jobs report. Touchdown! Bloomberg/CNBC celebrated - and markets got smoked. I feel bad for anyone who was long anything.


It wasn’t just the US stock market that deflated. It was the FX market, Commodities market, and Bond Market. Oh, and Emerging markets got crushed too. An inverse-correlation spiking of the US Dollar it was, indeed.

Touchdown Deflation - Fed cartoon 01.28.2015


Back to the Global Macro Grind


Get the US Dollar right, you tend to get a lot of other things right. While I definitely didn’t get the long-end of the US Treasury bond market right last week, our #StrongDollar Global #Deflation Theme remains firmly intact.


With the US Dollar Index up another +2.5% on the week to +8.3% YTD, here’s what else happened across Global Macro:


  1. Burning Euros were devalued by another -3.1% to -10.4% YTD
  2. Canadian Loonies lost another -0.9% of their value to -7.9% YTD
  3. Commodities (CRB Index) deflated another -1.8% to -4.3% YTD
  4. Oil slid another -0.3% (WTI) to -8.6% YTD
  5. Gold got crushed -4.0% to now down for 2015 at -1.7% YTD
  6. Copper resumed its #deflation, -3.1% to -7.6% YTD
  7. Wheat #deflation of another -5.9% puts it at -18.8% YTD
  8. Oranje Juice got sacked for another -4.3% at -17.7% YTD


Wheat and OJ? Really? Yes, some of us Gen-X guys pound both for breakfast (every morning) and quite like the Gronk action in those prices. It’s kind of like a tax-cut (even though most companies aren’t get cutting those end market prices)!


And in terms of what most people care on (unless their asset allocator has Gold, Commodities, FX, etc. in their pie chart portfolio), which are stocks and bonds, the week-over-week wasn’t pretty either:


  1. Latin American Equities led losers, -7.2% on the week to -9.7% YTD
  2. Chinese stocks dropped -2.1% week-over-week to +0.2% YTD
  3. US stocks (SPY) were down for the 2nd straight week, -1.6% to +0.6% YTD
  4. US Energy stocks (XLE) deflated another -2.8% on the week to -3.0% YTD
  5. US REITS dropped -3.7% week-over-week to -1.2% YTD
  6. US 10yr Yield ramped +25bps on the week to close at 2.24%


Yep, it’s been a while since REITS (VNQ), the Long Bond (TLT), and the SP500 (SPY) were anywhere close to flat-to-down for the YTD… but no matter where you go this morning, there those returns are (the UST 10yr Yield started 2015 at 2.17%).


Clearly the market is a little freaked out that the Fed might make a policy mistake and go for what John, the Wild Thing, Williams in San Francisco calls “liftoff.” Forget spiking the ball, for some of these non-athlete central planners, this is as intense as it gets!


So now it’s game time for the Fed. At their March 18th meeting, they’ll need to either confirm or fade on the obvious market expectation of a June rate hike. But they’ll also have to outline the data “dependence” plan between now and June.


  1. What if the March or April jobs reports are as bad as February was good?
  2. What if February was literally as good as a late-cycle jobs report is going to get?
  3. What happens if the stock market does what it did Friday, every Friday?


Lots of questions. Lots of non-linear and interconnected risks. It’s not like the late-cycle recovery in the US employment data is either new or going parabolic like the US Dollar is.


To put the Non-Farm Payroll print in rate-of-change context, it was +2.39% year-over-year vs. +2.32% in the prior month. That was the 6th consecutive month of what we’ve called “acceleration”, but 6 months ago the rate-of-change was 2.04%. #nothingness


And, most importantly, as you can see in the Chart of The Day, the payroll numbers are the most lagging of late-cycle employment numbers there are. Most of the time they peak, AFTER the economic cycle does.


Sorry football fans, this makes for a macro market that I think will make for a lot of what hockey players call “read and react.” Other than risk managing levels and calendar catalysts, until the Fed clarifies, what else would you do other than stay flexible?


While I had some big immediate-term oversold signals in things I like right now (on Friday in Real-Time Alerts I signaled buys in IWM, XLV, and EDV – Russell, Healthcare, and Long-term strips), a hawked up Fed can #deflate my confidence in those positions, in a hurry.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 1.91-2.28%

SPX 2064-2105
RUT 1205-1234
VIX 13.81-16.21
USD 95.60-97.92
EUR/USD 1.07-1.10
Oil (WTI) 48.05-51.95
Gold 1165-1201


Best of luck out there this week,



Keith R. McCullough
Chief Executive Officer


Touchdown Deflation - drake1

CHART OF THE DAY: Lower Interest Rates for Longer

CHART OF THE DAY: Lower Interest Rates for Longer - 03.23.15 chart


Editor's Note: This is a brief excerpt from today's Morning Newsletter written by Hedgeye CEO Keith McCullough. Click here to become a subscriber.


"...[M]y fundamental research call for lower interest rates for longer (as the rate of change in both Global Growth and Inflation slow) remains intact. At the same time, I am not hoping for a devalued US Dollar. US companies who are reporting international revenues and earnings are. The only reason why US GDP growth isn’t falling below 2% is because real US consumption growth loves #StrongDollar."

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Hope Remains Intact

“One would hope that the Fed will be very cautious about tightening.”

-Ray Dalio


That’s what Global Macro man, Ray Dalio, was hoping for in his Bridgewater’s Daily Observations note from March 11, 2015. He believes that it is “best for the Fed to err on the side of being later and more delicate than normal.”


While hope is not a risk management process, I was hoping for the same last week. And my fundamental research call for lower interest rates for longer (as the rate of change in both Global Growth and Inflation slow) remains intact.


At the same time, I am not hoping for a devalued US Dollar. US companies who are reporting international revenues and earnings are. The only reason why US GDP growth isn’t falling below 2% is because real US consumption growth loves #StrongDollar.


Hope Remains Intact - z doll 2


Back to the Global Macro Grind…


The problem, of course, is that when the Dollar is rising and Rates are falling (at the same time), you get #Deflationary forces in asset prices tied to inflation expectations. This is where Wall Street and Main Street are hoping for different things.


Last week, on the dovish Fed “news”, the US Dollar and Interest Rates dropped:


1. US Dollar Index (-2.4% for the week) had one of its biggest down weeks in the last 6 months

2. US Treasury Yields (10yr) dropped 18 basis points on the week to 1.93%


That was the very immediate-term move that Dalio and I were hoping for, as it took out the big bang risk of the Federal Reserve making a policy mistake at the end of multiple cycles.


On Down Dollar:


1. The Euro had one of its biggest up weeks in the last 6 months, +3.1% to -10.6% YTD

2. Gold had a big bounce (Gold loves Down Dollar, Down Rates) of +2.8% to 0.0% YTD

3. Commodities (CRB Index) finally stopped making new weekly lows, +1.6% at -6.9% YTD

4. Emerging Market Stocks (MSCI Index) bounced +3.2% to +1.4% YTD

5. Latin American Stocks (MSCI) had an even bigger bounce +5.4% to -9.6% YTD


Meanwhile, on Down Rates:


1. Biotech Stocks (IBB) ramped another +6.0% to +20.8% YTD

2. REITS (MSCI Index) ripped a +5.6% move to +6.8% YTD

3. NASDAQ tacked on another +3.2% to +6.1% YTD

4. Long Bond (TLT) had a great week, +3.8% to +4.6% YTD

5. SP500 had its 1st up week in the last 3, closing +2.7% putting it back in the black at +2.4% YTD


In other words, most of the #Deflation trades bounced to something less-than-terrible (both absolute and relative) for 2015, whereas the real alpha trending in macro markets continues to play to the lower-rates-for-longer camp’s advantage.


All the while, consensus was setup for a rate-hike. Here’s where futures and options net positioning (CFTC non-commercial positions) are:


1. SP500 (Index + Emini) net SHORT position rose to its highest of 2015 at -76,511 contracts

2. Long-term Treasuries (10yr) net SHORT position came off its YTD highs to -132,900 contracts

3. The Euro’s net SHORT position got pinned at YTD highs of -201,135 contracts


With the SP500, Long-term Treasuries, and Euros all straight up from within six minutes of the FOMC announcement, Consensus Macro getting squeezed provided for a cherry on top of what was an admittedly hoped-for reprieve in policy mistake expectations.


Hence my “buy everything” call on the news. But now what? Do you sell everything? I don’t think so – I’m definitely not selling Long-term bonds and/or anything that looks like a bond. Not if the market is expecting the Fed to deliver on “data dependence.”


While this week’s CPI data should get a small lift from Oil bouncing like it did in FEB, that #deflation data is going to look very dovish when it gets reported for MAR (in April). Friday’s final GDP report for Q414 will also look slower, sequentially.


Fortunately, our rate of change models are not built on hope.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 1.89-2.03%

SPX 2080-2119


USD 97.17-100.39

EUR/USD 1.04-1.08

Oil (WTI) 42.04-48.03

Gold 1159-1188


Best of luck out there today,



Keith R. McCullough

Chief Executive Officer


Hope Remains Intact - 03.23.15 chart

March 23, 2015

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Monday Mashup

Monday Mashup - 1


Recent Notes

03/16/15 SHAK: NYC is Not the Center of the Universe

03/16/15 Monday Mashup

03/17/15 DRI: Expectations of Hope and Change

Events This Week

Monday, March 23rd

  • Telsey Advisory Group Spring Consumer Conference: DPZ

Tuesday, March 24th

  • Telsey Advisory Group Spring Consumer Conference: DENN
  • SONC earnings call 5pm EST

Wednesday, March 25th

  • Telsey Advisory Group Spring Consumer Conference: DRI

Thursday, March 26th

  • CIBC Retail & Consumer Conference: QSR
  • COSI earnings call 5pm EST


Recent News Flow

Monday, March 16th

  • RRGB promoted Denny Marie Post to Executive VP and Chief Concept Officer and appointed Lee Dolan Senior VP and Chief Marketing Officer.
  • JMBA filed a form 12b-25 to extend the filing date for its 2014 Form 10-K.  The company plans to report in this 10-K that, at the end of 2014, material weakness existed in its control over financial reporting due to insufficient finance and accounting resources in the organization.
  • BLMN appointed Gregg Scarlett as Executive VP of Bloomin’ Brands and President of Bonefish Grill.  Stephen Judge plans to leave the company, after a transition period, to pursue other interests.

Tuesday, March 17th

  • BJRI upgraded to outperform at Wedbush Securities with a $63 PT.

Wednesday, March 18th

  • SBUX announced that its Board of Directors declared a two-for-one stock split and will begin trading on a split-adjusted basis on April 9, 2015.
  • SBUX and Tingyi Holding entered into an agreement to manufacture and expand the distribution of Starbucks ready-to-drink products throughout mainland China.

Friday, March 20th

  • TAST initiated buy at Dougherty & Co. with a $10.50 PT.



Monday Mashup - 2


Sector Performance

The SPX (+2.7%) outperformed the XLY (+2.1%) last week.  Both casual dining stocks and quick service stocks, in aggregate, underperformed the SPX.

Monday Mashup - 3

Monday Mashup - 4


Quantitative Setup

From a quantitative perspective, the XLY remains bullish on an intermediate-term TREND duration.

Monday Mashup - 5


Casual Dining Restaurants

Monday Mashup - 6

Monday Mashup - 7


Quick Service Restaurants

Monday Mashup - 8

Monday Mashup - 9

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