GS: Adding Goldman Sachs to Investing Ideas

Takeaway: We are adding GS to Investing Ideas.

Editor's Note: Below is a brief note written earlier today by Hedgeye CEO Keith McCullough. Our Financials analyst Jonathan Casteleyn will provide a deeper update this weekend.

GS: Adding Goldman Sachs to Investing Ideas - 45


I still don't like the Financials (XLF) so I get why they are down -2% YTD (vs TLT +5.5%). But I also get that there is a time to cover shorts when they are signaling immediate-term TRADE oversold. 


Instead of buying the ETF, we'll opt for 3% of it, Goldman Sachs (GS), which continues to signal bullish on both our intermediate-term TREND duration and research.


Long-term, Jonathan Casteleyn likes Goldman Sachs, but in the short-term, he sees the upcoming GS quarter as follows:


The Q1 period is seasonally the best for FICC and intra-quarter commentary at several investment conferences lends confidence to a much better sequential print for fixed income trading from an abnormally low 4Q14 result.


GS Asset Management is also taking share and will contribute to an improved upcoming quarterly result. 


Buy on red.


Keith's Macro Notebook 3/25: UST 10YR | Housing | Financials

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

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LEISURE LETTER (03/26/2015)




  • March 26: Macau Legend 4Q conf call 8:30-9:30pm (EST)
  • March 27: CCL F1Q, 10am -


SGMS - currently holds the West Virginia contract to provide the central monitoring system. That six-year, $6.2 million was originally awarded in 2006 and was extended when the six-year term expired. The current contract is set to expire in 2017.


WV Lottery director John Musgrave said the Lottery would like to have the bidding process complete a year before the current contract expires to allow for any transition period that might be needed should a different vendor win the contract.


Meanwhile, the state’s various lottery games generated nearly $94.7 million in revenue in February, about $2.2 million better than the $92.5 million forecast for the month. However, it was about $4.2 million less than the $98.9 million generated in February 2014. Better than expected revenue from video lottery games at the state’s four racetrack casinos, along with a boost in online games thanks to the $564.1 million Powerball jackpot during the month, helped offset a sluggish performance in limited video lottery revenue during the month.


Musgrave said the casinos are seeing a slight increase in consumer spending. He hoped that the improving spring weather combined with improvements in the regional economy will have positive effect on casino revenue in the next few months. “We would like to think we’re seeing an increase in disposable income,” he said.


Takeaway: Can SGMS hold on to the WV contract? In addition, WV casino revenues haven't seen a growth month since June 2012 due to stifling new competition. The decline will continue in March.


CCL - Carnival is ready to order 10 new ships and to sign a construction contract with the two biggest shipyards in Europe, Fincantieri in Italy and the German giant Meyer Werft. 


The announcement with the details of the ships, the shipyards involved and the total figure for the agreement are expected by the end of this week, perhaps by Friday. The commission from the American company will be divided equally between Fincantieri and Meyer Werft.


The market price for these units would be between $700 and $800 million each, a figure that would bring the total value of the commission for Fincantieri to $4 billion. Other sources confirm that the order, when announced, should include a new class of ship for the Costa Cruise fleet: a 170,000-tonne prototype that could be ordered with a twin ship.


The other ships should be divided between the American giant’s various brands, Carnival in particular urgently needing a renewal of its fleet. New ships for Aida are also at stake: the group’s German brand, after the complicated construction of its latest ship in Japan, the “AidaPrima”, Aida decided to build its next ships in Europe. 


Takeaway: Build it and they will come.... CCL hopes that is the case.


CY Foundation - CY Foundation Group Ltd, the parent of Macau-based casino services provider CY Management Ltd, said its plans to expand slot machine operations have to be extended beyond the original deadlines.


“Given the recent changes in market environment in Macau, the group has not been able to achieve its target to expand the number of gaming machines in operation to 1,000 by the end of this financial year [on March 31, 2015],” the company said in a filing this week.


CY Foundation identified the market changes affecting Macau’s gaming industry as “the enforcement of non-smoking policy in casinos, mainland China’s policies on restricting frequency of visitation to Macau and the anti-corruption drive within mainland China”.


The company had said in its interim report in December that its goal was to expand the number of gaming machines in operation to 1,000 by the end of the current financial year, and to 3,000 by the end of the financial year ending March 31, 2017.


CY Foundation said it would continue to explore potential sites in Macau and Southeast Asia.



Japanese pachinko operator Niraku Holdings is IPOing in Hong Kong to raise US$49.5 million.

Niraku is selling 30 million shares at HK$1 to HK$1.28 each in the IPO, which closes Friday, Macau Business reported.

The money will be used to build five pachinko halls in northeastern Japan.

The $49.5 million is significantly less than the $100 million to $200 million Niraku originally expected to raise.

Niraku is one of four pachinko operators expected to go public this year.







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 a negative pivot here looks increasingly likely in 2015.

Long U.S. #Housing + Long Bond

Client Talking Points


UST 10YR Yield down to 1.87% after CPI for FEB being -0.03% year-over-year and a very tough comp pending in MAR – if the Fed is “data dependent” they’ll get their dovish #deflation data in April (when MAR data is reported). The next immediate-term support line for the UST 10YR is 1.82%, and we’re staying with a re-test of the year-to-date lows as our TREND call.


Evidently a lot of funds were short U.S. housing on the FEB “weather” and that New Home Sales print of 539,000 for FEB took the sub-sector to year-to-date highs (+8.1% vs SPX +1.6% year-to-date); guess what the weather does, sequentially, in March and April? Another great way to be long lower-rates-for-longer too.


Financials (XLF) are not a great way to be long lower-rates-for-longer; Yield Spread (10s/2s) compressing right back to year-to-date lows and the sector is now -1.5% year-to-date (vs. TLT +5.8%). Next to Energy stocks, Financials remain our favorite U.S. Sector Style short idea here.

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

Manitowoc  (MTW) is splitting the business into two companies. Given the valuation differential between the sum-of-the-parts and the current enterprise value of the company, the break-up should be a substantial positive. Recent nonresidential and nonbuilding construction data remains firm for 2015, which suggests that MTW’s crane sales should see a pickup in the first half of the year. The Architecture Billings Index (a survey of architects) typically leads nonresidential and residential construction spending by approximately 9-12 months. More importantly, the ABI Index leads MTW Crane Orders by 2 quarters.


iShares U.S. Home Construction ETF (ITB) is a great way to play our long housing call, U.S. #HousingAccelerating remains 1 of the Top 3 Global Macro Themes in the Hedgeye Institutional Themes deck right now. Builder Confidence retreated for a 3rd consecutive month in March and New Home Starts in February saw their biggest month-over-month decline since January 2007.  We think the underlying reality is more sanguine with the preponderance of the weakness in the reported February data largely attributable to weather.


While labor supply constraints may serve as a drag to builder confidence, presumably it is rising demand trends that are driving tighter conditions in the resi employment market.  All else equal, we’d view improving demand as a net positive.  On the New Construction side, while the sharp drop in Housing Starts captured most of the headlines, we believe the real story was in the 3% gain in permits. We'd expect to see a big rebound in the next two months in housing starts as the data plays catch-up to the thaw.


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. 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.

Three for the Road


The live and interactive #MacroShow is back, @KeithMcCullough starts at 8:30AM ET Click here:



You’ve got to tell your money what to do or it will leave.

 -Dave Ramsey


Headline U.S. CPI increases +0.2%, positive for the 1st time in 4 months and improves to +0% year-over-year (although it’s still negative at -0.03% if you carry out the decimal another place).

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