RTA Live with Keith McCullough

Here is the replay from today's edition of RTA Live, available exclusively to Real-Time Alerts subscribers.



Takeaway: Street estimates still too high but some metrics less bad


With in-line weekly numbers reported this morning and following our trip to Macau last week, we are probably a little less negative.  Indeed, some takeaways were positive on the margin but there still appears to be too much risk, particularly with Street estimates still too high. 


We still think Street estimates for the Macau operators remain too high, despite recent reductions, particularly in the base or grind mass segment.  However, our Macau trip last week revealed some less negative trends.  Direct VIP seems to have stabilized (and maybe growing again?) and while junket VIP and premium mass probably haven’t, direct VIP carries higher margins.  Additionally, there was more optimism among market participants that the highest margin segment, grind mass, may be basing sequentially.


Unfortunately, the Street seems to be still projecting YoY growth in grind mass for the operators in 2015 which appears unlikely given the volumes in the early part of the year.  By contrast, simply projecting current volumes forward through the rest of the year yields a high teens YoY decline in total mass and a high single digit decline in grind mass.


Please see our detailed note:

Monday Mashup

Monday Mashup - 1


Recent Notes

03/23/15 Monday Mashup

03/23/15 DRI: Room to Breathe

03/27/15 MCD: Putting the Activist Thesis to the Test

Events This Week

  • No Events


Recent News Flow

Monday, March 23rd

  • DRI upgraded to outperform at Telsey Advisory Group with a $77 PT.
  • RT downgraded to neutral at Longbow Research.
  • DENN announced the adoption of a pre-arranged stock trading plan for the purpose of repurchasing a limited number of shares of its common stock between April 6, 2015 and May 6, 2015.

Tuesday, March 24th

  • DNKN promoted Jack Clare to the newly created position of Chief Information and Strategy Officer.  Mr. Clare will be a member of the Dunkin’ Brands Leadership Team and will continue to report directly to the CFO, Paul Carbone. 

Wednesday, March 25th

  • No material news

Thursday, March 27th

  • No material news

Friday, March 28th

  • RRGB target was raised at Miller Tabak following recent checks that suggest upside to 2015 same-store sales guidance.



Monday Mashup - 2


Sector Performance

The SPX (-2.2%) outperformed the XLY (-2.4%) last week.  Both casual dining and quick service stocks, in aggregate, outperformed 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

European Banking Monitor: Widening in Financials Swaps

Takeaway: Performance in Greek bank swaps diverged last week but the takeaway is continued Euro uncertainty given the drawn out process.

Below are key European banking risk monitors, which are included as part of Josh Steiner and the Financial team's "Monday Morning Risk Monitor".  If you'd like to receive the work of the Financials team or request a trial please email 




Key Takeaway:

The risk environment looks much the same as last week with intermediate measures in our heatmap slightly more negative. In Europe, even with Greece sending its draft of economic overhauls to creditors, the process has been so dragged out that investors' concerns and uncertainty remain heightened.  


European Financial CDS - Swaps mostly widened in Europe last week. Greek bank swaps are putting up diverging performance, but the main takeaway for Greece is continued uncertainty. Even with Greece sending a draft list of its economic overhauls to its creditors, this progress was delayed by contentious discussions between Greece and EU finance ministers.  Given how discussions have gone so far, investors rightfully see a smooth process going forward as unlikely. Separately, Russia's Sberbank saw further tightening as its swaps retreated -29 bps to 485 bps.


European Banking Monitor: Widening in Financials Swaps - chart1 financials CDS


Sovereign CDS – It was a fairly quiet week for developed market sovereign swaps,  which widened modestly vs last week. Portuguese sovereign swaps widened by +6 bps to 136, while Spanish swaps widened +3 bps to 93 bps. 


European Banking Monitor: Widening in Financials Swaps - chart2 sovereign CDS


European Banking Monitor: Widening in Financials Swaps - chart3 sovereign CDS


European Banking Monitor: Widening in Financials Swaps - chart4 sovereign CDS


Euribor-OIS Spread – The Euribor-OIS spread (the difference between the euro interbank lending rate and overnight indexed swaps) measures bank counterparty risk in the Eurozone. The OIS is analogous to the effective Fed Funds rate in the United States.  Banks lending at the OIS do not swap principal, so counterparty risk in the OIS is minimal.  By contrast, the Euribor rate is the rate offered for unsecured interbank lending.  Thus, the spread between the two isolates counterparty risk. The Euribor-OIS spread was unchanged at 11 bps.


European Banking Monitor: Widening in Financials Swaps - chart5 euribor OIS spread



Matthew Hedrick



Ben Ryan




Moving Macro Markets

This note was originally published at 8am on March 16, 2015 for Hedgeye subscribers.

“Moving things around is hard – really hard.”

-Peter Zeihan


In an excellent book that I just cracked open, The Accidental Superpower, Peter Zeihan wasn’t talking about Global Macro markets – he was referring to moving real stuff. And our centrally-muppeteered markets are getting less real, by the day.


Moving macro markets around is easy – really easy. And those with un-elected-central-planning-powers know that. So prepare for more, not less, of this. As their economy continues to slow, the Chinese were the latest to issue the almighty “stimulus” word to markets this weekend. The Shanghai Composite closed up +2.3% overnight on that to +6.6% YTD.


With the US stock market down -0.3% YTD, all Janet has to do at the Fed’s gravity-smoothing meeting this week is say that she is going to keep the word “patient” and she can fix those lousy relative and absolute US stock market returns. I mean, seriously, Yellen – Lithuania’s stock market is +65% YTD with Draghi burning the Euro – get with the market moving program!

Moving Macro Markets - Central banker cartoon 03.03.2015


Back to the Global Macro Grind


Do we have $100 on the US Dollar Index? Indeed, we do, fellow green-card holding Americans! With the US Dollar Index up another +2.8% last week, those of us paid in US Dollars have seen the purchasing power of our hard-earned currency rise +19.1% in the last 6 months.


Oh, dearest Janet, you must stop those of us who have large cash positions in America from getting paid…


Most people who are in the business of telling me that my being in some cash isn’t cool don’t look as cool as our YTD return in US Cash does. At +11.1% YTD and the US stock market down for 3 straight weeks, US Cash is king!


For those same people who didn’t know that a rip-roaring ramp in the US Dollar was going to crash both Foreign Currency and Commodity markets, worldwide – now they know. Here’s what that “stuff” has done in the last 6 months:


  1. Euros have crashed, losing -19% of their value for the European people who earned them
  2. Japanese Yens and Canadian Loonies have been devalued by -11.6% and -13.2%, respectively
  3. Brazilian Reals have crashed -28%
  4. Russian Rubles have collapsed by -39%
  5. Commodities (CRB Index, 19 commodities) have also crashed, -25.3% in 6 months
  6. Oil (WTI) has been bludgeoned, losing -50.3% of its “value”, over the same time period


In other non-stock-market news (i.e. economic data), Switzerland reported accelerated #Deflation of -3.6% year-over-year in producer prices this morning. No, that’s not good for the dude who is selling in whatever that is which is hard to move and produce…


And that currency-adjusted risk management thought has to be what is on the mind of many investors who have foreign currency risk to both revenues and earnings these days. That’s probably why the 15-day inverse correlations to USD currently look like this:


  1. SP500 -0.94
  2. CRB Index -0.75
  3. Gold -0.94


That, “folks”, is called #deflation - when the US Dollar goes parabolic as both US and global bond yields fall. Last week, the US 10yr Yield dropped -13 basis points to 2.11% taking it to down -6 basis points for the YTD.


Sovereign Bond Yields down was good for what really works during what we call #Quad4 Deflation:


  1. US Healthcare Stocks (XLV) up another +0.6% last week to +5.0% YTD
  2. REITS (MSCI Index) +2.4% last week to +1.1% YTD


And not so good for what doesn’t work during #Quad4 Deflation:


  1. Energy Stocks (XLE) down another -2.8% last week to -5.7% YTD
  2. Emerging Market Stocks (MSCI Index) -3.3% last week to -1.8% YTD


The sneaky thing is that as the world’s economy remains in #Quad4 (both growth and inflation, slowing, at the same time), the USA is in #Quad1 for another month (real consumption growth accelerating on real FX adjusted purchasing power, as inflation slows).


That’s the main reason why I’ve liked the Russell 2000 over the SP500 so far in 2015. It’s a purer play on the domestic economy, so it didn’t surprise me whatsoever that the Russell (IWM) was +1.2% last week to +2.3% YTD in a down tape for the Dow and SP500.


Moving asset allocations around isn’t easy. But if you get both the US Dollar and rates right, it gets less hard.


Our immediate-term Global Macro risk ranges are now:


UST 10yr Yield 2.01-2.22%
SPX 2025-2075

RUT 1220-1245
DAX 11690-12004
VIX 13.28-17.45

USD 97.99-100.87
EUR/USD 1.03-1.07

Oil (WTI) 43.26-49.03


Best of luck out there this week,



Keith R. McCullough
Chief Executive Officer


Moving Macro Markets - Chart of the Day

Quarter-end Markup

Client Talking Points


The dude from the PBOC called it a “very huge” growth problem in Q1, so the Chinese are going to bet on very huge stimulus as a result! Shanghai Composite ramps another +2.6% overnight to +17.1% year-to-date and +65% from the OCT lows.


It’s a #StrongDollar morning, and we like it – EUR/USD backed off our $1.10 resistance, hard, last week and is back down to $1.08 this morning – German Stocks love it +1.4%, erasing all of last week’s losses at +22.7% year-to-date – Denmark +30.1% year-to-date!


Get the Dollar right and you’ve been getting Oil right, for 8-9 months – staying with our Commodity #Deflation call as WTI backed off the top-end of my range - risk range is now $42.82-51.40, signaling lower-intermediate-term highs yet again.

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


Life is the art of drawing without an eraser.

-John W. Gardner


The Euro bounced +0.6% to -10.0% year-to-date vs the USD.

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.