REPLAY: The Macro Show, Live with Keith McCullough

Watch The Macro Show live with Hedgeye CEO Keith McCullough.


The Macro Show is Hedgeye TV’s live, turbocharged and interactive daily pre-market show where we break down what’s happening in the markets and Global Macro and offer our insight on how you, the investor, can position yourself for the day ahead. We share 15 minutes or less of prepared market analysis and commentary and then answer your questions in a live Q&A session.



Cartoon of the Day: Three Little Pigs (And a Bull)

Cartoon of the Day: Three Little Pigs (And a Bull) - Housing cartoon 04.01.2015

Hedgeye reiterates our bullish call on Housing made previously in Investing Ideas.

Keith's Macro Notebook 4/1: Europe | U.S. Dollar | UST 10YR


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

Retail Callouts (4/1): FL, NKE, UA, AdiBok, RH, WMT, SHLD

Takeaway: Nike up to record 73% of FL purchases in 2014. RH expanding its Greenwich footprint. WMT cutting vendors to pay employees.



FL, NKE - Nike % of purchases up to 73% in 2014



Takeaway: Nike purchases increased 500bps from 68% to 73%, the largest bps jump we've seen since 2008 and now sits at the absolute highest level in forever. That doesn't sound like good risk management to us. Because of AdiBok's utter collapse and the absence of a clear cut number #2 in the US market, we don't know that FL has any other option. The best possible environment for an athletic retailer is when the major brands are heavily competing for shelf space. Nike and UA (to a lesser extent) won't have to fight as hard, or spend as much, to get incremental space at FL. Foot Locker wants nothing more than to have a strong staple of contenders looking to take a few points of share. It just doesn't have that luxury.


It's not like Nike and Brand Jordan are the only brands on FL shelves, its that FL's new concepts (House of Hoops, Fly Zone, and Yard Line) are 100% Nike. It's these concepts that FL is looking to for growth in its core business, which means the Nike allocation goes up as remodels continue. We can't say Nike will back away from this strategy because it increases its distribution footprint and showcases its tier 1b product (tier 1a is saved for its own stores and website) with very little cost of capital. But, if there is one company you don't want to be monopolized by it's NKE. Especially as it continues to ramp its own direct business after a multi-year investment cycle.


Lastly on gross margin, over the past 5 years we've seen gross margin head north as Nike percent of purchases has climbed about 1000bps. This seems counter intuitive due to the leverage Nike typically exerts on its partners, but we'd argue that this is due in large part to Nike's ability to drive traffic thus taking the attachment rate higher for things like socks, headwear, etc. But, what happens when there is nothing but Nike to attach to? We think it means FL will see the full brunt of the IMU pressure the company has been calling out.

Retail Callouts (4/1): FL, NKE, UA, AdiBok, RH, WMT, SHLD - 4 1 chart1


RH - Adding 2nd Store In Greenwich Market



Takeaway: Link to full note CLICK HERE


WMT - Wal-Mart Ratchets Up Pressure on Suppliers to Cut Prices



Takeaway: 1) Walmart is cutting vendors again, but this time to pay employees instead of customers. 2)Not good for the rest of retail when the giant starts ratcheting down on suppliers. 3) This is exactly why we won't see commodity deflation (especially cotton) flow through on the P&L. WMT will set the tone and everyone will follow causing the industry to compete the benefit away.









BURL - Burlington Stores, Inc. Announces Secondary Offering of Common Stock



MW - Report: Jos. A. Bank lays off 122 headquarters employees



TGT - Target releases fresh merchandise in rapid-fire 2015 overhaul



LULU - Lululemon Athletica Inc’s new men’s ‘anti-ball crushing’ pants grab media buzz and sales



RL - Ralph Lauren, USPA Continue Legal Squabbling



CBK - Macellum Delivers Letter to the Chairman of Christopher & Banks Corporation



Macerich Rejects Enriched Simon Offer



Torrid opening Chicago flagship; on track to open 60 stores in 2015


Checking In With TACRM

Our Tactical Asset Class Rotation Model (TACRM) remains an invaluable input in our research process. Listed below is a summary of noteworthy observations from the latest refresh (CLICK HERE to download the presentation):


  • At the primary asset class level:
    • Investors continue to reduce their marginal exposure to every primary asset class except DM Equities. (slide 10)
    • For Commodities in particular, investors continue to reduce their marginal exposure at an accelerating rate. (slides 8 and 10)
    • That said, however, the rotation out of EM Equities and FX has clearly stabilized. (slide 8)
    • In fact, EM Equities is currently the asset class with the highest degree of factor exposures exhibiting positive VWAP momentum across multiple durations. The rally in Chinese equities is largely responsible for this. (slide 7)
    • Investors’ marginal exposure to DM Equities is especially crowded – in the 98th percentile of all readings on a TTM basis and in the 87th percentile of all readings since the start of 2008. (slides 9 and 10)
    • Investors are reducing their exposure to Cash – which is comprised solely of the USD and the VIX – at an accelerating rate, as well. (slides 8 and 10)
    • It would appear a wide-ranging fear of an unwind of consensus positioning (i.e. long USD, long European Equities, short Treasury Bonds, short Commodities and short EM) is driving the aforementioned broad de-risking.
    • We aren’t yet of the view that such an unwind will occur in the near term. That said, however, it’s also not at all difficult to connect the dots on that occurrence given our intermediate-term outlook for U.S. growth and the Fed’s likely response to that.
    • Per Keith's commentary this AM: “Counter-TREND moves have sucked a lot of people in and ripped them the other way, fast… so we just need to be patient until TREND signals confirm [any nascent] phase transitions.”
  • At the individual factor exposure level:
    • Commodities, FX and EM Equities continue to dominate the list of exposures exhibiting the largest degree of negative VWAP momentum across multiple durations. (slide 5)
      • It’s worth noting that the velocity of the downtrends across the preponderance of FX exposures in this list is clearly decelerating. That is bullish, on the margin. (slide 5)
    • DM Equities and Chinese Equities dominate the list of exposures exhibiting the largest degree of positive VWAP momentum across multiple durations. (slide 5)
      • It’s worth noting that the velocity of the uptrends across each of the Chinese Equity exposures in this list is clearly accelerating. That is an especially bullish signal. (slide 5)
    • Within the U.S. Equity Market:
      • There is a clear divergence in momentum within the Size and Economic Cycle style factors. Recall that TACRM tracks 47 unique sector and style factor exposures within the domestic equity market in order to formulate a robust mosaic of market color.
      • With respect to Size:
        • Eight of the ten exposures exhibiting the largest degree of negative VWAP momentum across multiple durations are large-cap equities: IYT, XLB, OEF, XLI, XLU, XLK, IEZ and IWD. (slide 6)
        • Three of the ten exposures exhibiting the largest degree of positive VWAP momentum across multiple durations are small-cap equities: IWO, IWM and IWM. (slide 6)
      • With respect to the Economic Cycle:
        • That Transports (IYT), Industrials (XLI) and Tech (XLK) are among the eight factor exposures exhibiting the largest degree of negative VWAP momentum across multiple durations, while Retailers (XRT) and Homebuilders (ITB) are the top two  factor exposures exhibiting the largest degree of positive VWAP momentum across multiple durations speaks volumes to the divergence between souring late-cycle data (e.g. CapEx and Industrial Production) and firming early-cycle data (e.g. Consumption and Housing) that we continue to highlight. (slide 6)


In the context of the continued uptrend in cross-asset volatility (GFSI) – as well as the uptrend in the volatility of volatility (VVIX) – we hope you find these quant signals helpful in your risk management process. As always, feel free to ping us with questions.


Checking In With TACRM - 1


Best of luck out there,




Darius Dale


LEISURE LETTER (04/01/2015)



NAGAWORLD- GGR at its Phnom Penh resort NagaWorld rose 48 % YoY in Q1 2015. Gross revenue from the VIP segment doubled, to US$65.5 million, from nearly US$32.6 million in Q1 2014. In the VIP segment, NagaWorld’s rolling chip turnover for Q1 2015 jumped 70% to nearly US$1.70 billion 


Takeaway: Great results from Nagaworld. Some formerly Macau VIP customers seem to be playing there.


IGT/GTECH - has met all conditions for merger with IGT. The combined company IGT will start trading on NYSE on April 7. Last day of trading in Borsa Italiana of GTECH shares will be on April 2.


Konami - expects the delisting of its ADS from NYSE to become effective April 24.


SGMS - announced that Santa Casa da Misericordia deLisboa ("SCML" or "the Lottery"), the operator of the Portuguese State Lottery, reported record instant game sales in 2014, up 18% YoY. The trend has continued in 2015 with instant game sales exhibiting an unprecedented year-over-year increase of more than 35% thus far.


Company signed a two-year contract in February 2014 to provide instant games and related services to SCML. Scientific Games became the sole supplier of the Lottery's instant games. 


Santa Casa da Misericordia de Lisboais currently ranked in the top four lotteries in Europefor instant game per capita sales (La Fleur's 2015 World Lottery Almanac).


Blackstone - will acquire three large hotels from a consortium led by Paulson & Co. for US$1.2 billion, according to a Wall Street Journal report. While the deal has not been confirmed by either party, people familiar with the matter said the hotels in the deal are the Ritz-Carlton and JW Marriott in Orlando, Florida, and the JW Marriott in Scottsdale, Arizona. The hotels combined have more than 2,500 rooms, about 472,000 square feet (43,850 square meters) of meeting space and 54 holes of golf on 800 acres (324 hectares).


Starwood Capital - sold the Ace Hotel in London for 150 million pounds. The sale includes the 258-bedroom hotel as well as the Miranda nightclub and the popular Hoi Polloi restaurant. It was sold by Starwood Capital Group to a company called Limulus which was advised by the Deerbrook Group. The deal comes nearly three years after Starwood bought the property out of an administration led by Ireland's National Asset Management Agency.


Takeaway: This luxury boutique property in hot London was sold for average ~US$860k per key.


CCL - Passengers have been stuck onboard P&O Oriana, as it has been unable to dock at Southampton due to strong winds.  Those due to board today have been told they can board from noon tomorrow and have been offered a 50% refund off a future cruise. The 1,000 passengers who traveled to Southampton have been put up in hotels and given dinner by P&O Cruises.



MSC Cruises - is returning to the UK next year with a short series of ex-UK sailings from Southampton. The line will base Fantasia-class ship MSC Splendida in Southampton for six sailings, having pulled out of the UK market this year.



Macau GGR -  March GGR as published by DICJ totaled HKD 20.861 bn (MOP 21.487 bn), down by 39.39% YoY.  

Takeaway: As expected


Graftbuster - Huang Shuxian, minister of supervision and a deputy chief of the Central Commission for Discipline Inspection, said on Monday he hoped to "pragmatically cooperate with Macau's Commission Against Corruption to strengthen the tracking down of fugitives and proceeds".  The remark was made during a meeting in Beijing with the Macau commission's director, Andre Cheong Weng-chon, days after the launch of Operation Skynet, the mainland's international manhunt for fugitive corrupt officials.



New construction safety rules - Macau is drafting new construction safety rules, officials said, after several workers died this month at casino sites amid a building boom in the world's largest gambling hub. The Labour Affairs Bureau of the southern Chinese territory said the new regulations would be submitted to the government this year. They would include a revision of existing occupation and laws to "safeguard workplaces for all workers".



Ohio bill would cut promotional expenses - Republican senators on Tuesday accused casinos and “racinos” of shortchanging schools and local governments by $165 million since 2012 by deducting promotional credits from their revenue before taxes. 


Coley, joined by Republican Sens. Dave Burke of Marysville and Bob Peterson of Sabina, seeks to overturn a law signed by Gov. John Kasich in July 2011 that approved promotional gaming credits -- part of an agreement Kasich worked out with casino operators in which they agreed to pay the state an additional $110 million over 10 years.


Under that 2011 agreement, if promotional credits are made taxable, casino operators Penn National and Rock Ohio Caesars could cease making payments to the state on the $110 million.


“It is a big deal,” Sen. Bill Coley (R., West Chester) said. “This month, March, 2015, Ohio casinos and racinos have surpassed $500 million in promotional gaming credits. A half a billion dollars has been given out in the short time that we’ve had gaming in the state of Ohio as promotional gaming credit.”


Mr. Coley’s bill would limit promotional credits to $5 million per casino a year.


Takeaway: This is a negative for PENN if Coley gets his way. We will keep an eye on his bill. 


Cash handouts - Secretary for Economy and Finance, Lionel Leong acknowledged that the value of cash handouts might be “adjusted” in 2016, depending on Macau’s economic outlook and the government’s budget. He told lawmakers that, “cash handouts depend on MSAR’s financial situation,” before adding that, “we are still estimating the amount that will be given in 2016, taking into consideration our budget. There’s a possibility that the cash handout might be a smaller amount than in 2015.”


This year, each permanent resident will be granted a cash handout of MOP9,000 and temporary residents will receive a smaller handout of MOP5,400. 



NJ lottery - NJ Treasurer Andrew Sidamo-Eristoff says the Christie administration has lowered its revenue expectations for the state lottery in fiscal year 2015, which ends on June 30.  He did not say specifically how much the expected revenue dropped but attributed the decrease to industry-wide trends.


State documents show that initial revenue forecasts projected $1.037 billion in revenue for the current fiscal year, but Christie’s 2016 proposal reflected lower receipts at $955 million.


Sidamon-Eristoff says the lottery, which Christie privatized in 2013, is facing increasing competition from other games and that there are demographic shifts affecting customers’ behavior.

Takeaway: Not surprising given the string of disappointing tax receipt #s recently from the NJ state lottery. NJ lottery is run by Northstar New Jersey (consortium with SGMS/GTECH/OMERS).


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.

investing ideas

Risk Managed Long Term Investing for Pros

Hedgeye CEO Keith McCullough handpicks the “best of the best” long and short ideas delivered to him by our team of over 30 research analysts across myriad sectors.