Daily table revenues for the 1st week of April came in only at HK$569m, down 34% YoY. This is worse than the low HK$600s we had been seeing in March. The Chingming festival (April 5) may have played a role in the lower numbers.


Last year, revenues fell 21% in the Chingming festival week versus the previous week. For 2013, the difference between the weeks was 2%. So there could be some impact but it varies. 


However, if the current run rate persists, we could be seeing a monthly decline closer to -40% for April, which would be another disappointment.


We will have more details in our Macau monthly presentation/conference call this Friday at 11am.





CHART OF THE DAY: Lower #Oil For Longer

CHART OF THE DAY: Lower #Oil For Longer  - 04.08.15 chart


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


Then I got lucky as the lead supply story on Oil for the last 3-6 months (rising Oil production) hit the tape:


    1. The API reported domestic crude inventories increase another 12.2MM barrels week-over-week
    2. That was basically the biggest sequential increase we’ve seen through this whole downturn
    3. A DOE number in that area code (10:30AM EST today) would be the biggest sequential ramp since DEC 5th, 2014


Stimuli and Effects

“Learning involves assessing relationships between stimuli and their effects.”

-Ed Hess


If that isn’t the truth about risk managing Global Macro markets, I don’t know what is. It’s Ed Hess’ opening volley in an excellent chapter from Learn or Die titled “Learning: How Our Mind Works.”


As our catalogs of stimuli and their effects grow, we develop stories that link them together so that we don’t have to remember them all individually… When we gain confidence with our stories, they become our reflexive, more automatic shorthand for interpreting the world. That is, they become our internal operating system…” (page 9)


Again, I think that is bang on. It’s all about the storytelling. And while we all know people who live, profitably, through plenty of lies, the fabrication of the truth eventually catches up to you in our profession. Long-term repeatable alpha is non-fiction.


Stimuli and Effects - 345


Back to the Global Macro Grind


The thing about the stimuli and their effects in markets is that they are constantly changing. For now, for example, you have to believe that A) Chinese growth and inflation are slowing in order to believe that B) the government is going to provide massive stimuli as a result. Then, by respecting market expectations, you are both bearish on Chinese growth/inflation and long its stock market!


I didn’t always think this way. I used to think that I was smarter than the market and that things like the aforementioned Chinese example couldn’t happen because the fundamental truth was that if growth was slowing, I could be short that market and eventually kill it (then I tried that more than a few times, shorted those types of markets … and got killed).


If you truly understand the fundamentals, the most important thing for you to solve for next is how that stimuli will be priced from a market expectations perspective. You don’t need a Ph.D. to master either expectations or your emotions. You need to check both your intellect and ego at the door, and risk manage the market you have, as opposed to the one you want.


Let’s apply some multi-duration, multi-factor stimuli and effect analysis to the oil market:


  1. Oil (WTI) is down over 47% year-over-year on #StrongDollar, Rising Supply, and Slowing Demand
  2. Oil was up +3.3% yesterday, taking it to +13% for the month-to-date on Saudi headlines  (with USD +1% on the day)


Ok. If my story about that isn’t 100% accurate, please email me and we’ll see if you have a better testament of what you believe is the truth (I’ll publish it on our site). I’m open to being edited! Internally, our commodities analyst, Ben Ryan, edits me all of the time.


Here’s the story Ryan told me about the head-fake stimuli (i.e. what the Saudi Oil Minister actually said vs. what mainstream media thought he said) yesterday:


  1. “I think this is very similar to what he's said all year”
  2. “He said it's not in their interest to cut production, but he'll work with other OPEC members”
  3. “They aren't in competition with shale producers and Oil prices will go up and down, adjusting for market forces”


One other thing Ryan noted is that the Saudi's are really the only OPEC member that has a significant amount of spare production capacity (more than half of all of OPEC). Their take is "we're already doing our part."


Again, to me that sounds as reasonable as any other story I read (from a credible independent research source) on the matter. So I rolled with that and sent out a SELL signal in Oil at 3:32PM EST in Real-Time Alerts. #timestamped


Then I got lucky as the lead supply story on Oil for the last 3-6 months (rising Oil production) hit the tape:


  1. The API reported domestic crude inventories increase another 12.2MM barrels week-over-week
  2. That was basically the biggest sequential increase we’ve seen through this whole downturn
  3. A DOE number in that area code (10:30AM EST today) would be the biggest sequential ramp since DEC 5th, 2014


But you make your own luck in this business by being able to:


A)     Contextualize a price/volume/volatility move within what we call our immediate-term TRADE risk range and

B)      Overlay that quantitative signal with an intermediate-term TREND research view


I went through this in our Q2 Global Macro Themes Call yesterday in what we’ve coined as Oil’s #DeflationDeck, which is effectively a bearish intermediate-term view of West Texas Crude Oil with an intermediate-term range of $36.11-57.54/barrel.


No, that’s not the “price deck” your Canadian Investment Banker is going to give you from his latest confab in Alberta. Neither is it the price your favorite “buy your own oil well” radio advertiser is going to tell your stories about from Midland, Texas.


It’s our story (born out of our process) on why our call on Global #GrowthSlowing and #Deflation will perpetuate lower-Oil-for-longer and why all of the #DeflationDomino risks associated with that to both levered Energy debts and equities remain firmly intact.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 1.84-1.93%

SPX 2060-2089
DAX 114
VIX 14.06-15.93
USD 96.65-98.98
WTI Oil 46.48-53.39


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Stimuli and Effects - 04.08.15 chart

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Aren't Bigger Calls, Better?

This note was originally published at 8am on March 25, 2015 for Hedgeye subscribers.

“Why get better when you can simply get bigger?”

-Peter Zeihan


I could go a lot of different ways with that quote, but I’ll stick to Global Macro this morning and go with the wood – America as the world’s superpower!


The aforementioned quote is another beauty from chapter 4, “Enter the Accidental Superpower” (pg 72) where Zeihan reminds us of simple, but very relevant, investment facts:


“From the Louisiana Purchase onward, the Americans have boasted the world’s most capital rich geography… It is the world’s largest agricultural, technological, financial, and based on how you collate the data, industrial power – and has been those things for fifteen decades.”




So why didn’t you think of getting yourself some bigger moneys under management for 0% down and buy some big time American brands like Kraft Foods, for $40 billion US Dollars this morning? Buffett says bigger is better, baby!


Aren't Bigger Calls, Better? - 34


Back to the Global Macro Grind


Maybe I won’t tell you to double down on a broken Old Wall Banker of America (BAC), but I can get you all bulled up on what is made in America and working, big time, in 2015 YTD – Housing and Treasuries!


Long-term Treasuries, that is…


It’s been hard enough to find some sunshine on my face during this Northeastern winter – and God knows this game is hard enough as it is, but on those two longer-term investment fronts, it was a damn good day in the USA yesterday:


  1. US Home Construction ETF (ITB) was +1.2% to +8.0% YTD
  2. Long-term Treasury Bonds (TLT) were +1.0% to +5.6% YTD


And that, my “folks” and friends, was fundamentally driven!


  1. US New Home Sales for FEB smoked the shorts at 539,000 (vs. the 465,000 consensus “estimate”)
  2. Consumer Price Inflation (CPI) came in at -0.03% year-over-year (despite Oil priced +7-8% higher in FEB vs March)


Does the bullish theme get bigger and better? Sure, why not:


  1. HOUSING: post the most snow in Boston since 1872, we’re calling for that to thaw this Spring
  2. RATES: lower-for-longer will remain firmly intact when the March #deflations are reported in April


I know, I know. These are some big calls based on some serious outdoor channel checks. That’s what makes us Canadians who do American macro sound so darn “smart.” #LiveQuotesAndWeather


Oh, and it gets better for the many, even though this is going to start getting painful (again) for the few.


The few that still think they should be overweight levered US Energy and Bank stocks, that is. The rest of us can sip on some all-time highs in American-made growth stocks like Starbucks (SBUX), which is +19.3% YTD, in the meantime.


Yeah, I can get as bullish as the next guy, right before I get run-over. How about you? I love hearing guys talk up their mojo when everything is working for them inasmuch as I enjoy the sweet-sound of spring #crickets, when it is not.


What wasn’t working in America yesterday?


  1. The poor bastard who is long the Ultra Short 20yr Treasury (TBT) is down -12.1% YTD
  2. Financial Stocks (XLF) were down more than the “market” (again) yesterday, -0.8% to -1.5% YTD
  3. Energy Stocks (XLE) were down another -0.7% yesterday to -3.8% YTD


“Poor bastard”? Oh yeah, in coming-to-America-man-with-no-money-terms, I’ve been one of those. Why do you think I have to get up every blessed day at 4:02AM? Being wrong in this business is easier than sleeping in.


America is not a poor country. And now the moneys are falling from centrally-planned-heavens for free. While I can’t reconcile why Swiss 10yr moneys cost -0.12%, why do I need to? Everybody should buy everybody now that global growth is slowing!


As you can see in the Chart of The Day, one of the great leading indicators that your un-elected Federal Reserve refuses to put on their navel gazing “dashboard” is called the Yield Spread. Leading indicator for the rate of change in US growth, that is…


While we remain bullish on #Quad1 for Q1 of 2015 (our year-over-year GDP forecast is higher than Wall Street’s), we were lower on Q4 and we’re forecasting slower in Q2 and Q3.


With the 10s/2s Yield Spread down to +129 basis points wide this morning, you’ll note that puts it right around its YTD lows (and the Q1 2012 lows). Oh, and Q2 starts 1 week from today – March turning into April is another big time macro call I’m definitely going to make!


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 1.82-1.99%
SPX 2082-2117
RUT 1251-1275
VIX 12.79-15.88
USD 96.74-98.98
EUR/USD 1.04-1.10
Oil (WTI) 42.35-48.31

Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Aren't Bigger Calls, Better? - 03.25.15 chart

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KATE – Completely On Track, Across Durations

Takeaway: 3-yr story of $2bn in incremental sales, 700bp in margin upside, $3+ in EPS, and a $75+ stock is on track. Near-term, you're paid to wait.

Conclusion: We remain extremely confident in the long term KATE story, which includes the company doubling its sales base in 3-years, taking margins from 11% to 19%, generating $3+ in EPS power, and ultimately, a stock between $70-$80.  Too often we have to couch a solid long-term story with challenges over the near term. But in this instance, we're seeing everything we need to remain comfortable that the company is executing on the short term plan as well as the long term. We think that the margin equation looks very good for KATE this year (and this quarter), especially relative to expectations. But let's face it, at 20x EBITDA, we need unadulterated top line growth IN ADDITION to improved margins for the stock to work. The good news is that we think we'll get both. While we won't see the company comp 28% like we saw in 4Q (when it put up the best comp in all of retail), we'll be shocked if the company does not beat the consensus of 7% (the whisper last month -- when the stock was still in the low $30s -- was 4-5%). We're at a 10% comp for the quarter, and if we had to pick the over/under on our estimate, we'd say 'over'.  While e-commerce is not the be-all-end-all for KATE, it is important at 20% of sales. The US traffic trends looked particularly good as the quarter came to a close. We outline more details below. For more details on the quarterly puts and takes, see our 3/5 note entitled "KATE - Buy The Guidance Gauntlet".




The way the math works, e-commerce alone would support 5% comp growth assuming it is a) 25% of the business in 1Q, b) grows at 20%, and c) Brick and Mortar comps are flat. If we ratchet e-comm comps up to 25% holding all other assumptions the same, it would get us to a 6.25% comp for the quarter. Based on what we’ve seen from the traffic metrics throughout 1Q we feel extremely confident in the company’s ability to deliver on the top line. We’re at a 10% comp for the quarter.


Here are a few charts we pulled looking specifically at KATE’s e-comm traffic trends in the US. These are daily metrics that gauge the visitation (measured by reach) and engagement (measured by attention) on a given day relative to the internet in aggregate.  We then paired that with the ‘Flash Sale’/promotional events during the quarter to get a better sense of what drove outsized traffic during the quarter.



Traffic trends (see chart 1) looked rock solid during the quarter. Measured by the YY spread in reach and attention.


We think that’s a favorable set up for KATE on the top line. Especially when you consider that the meaningful top line outperformance in 4Q14, where the company guided to 8%-14% comps and posted a 28%, was due in part to outperformance on the company’s reduced ‘Flash Sales’.


To sum up our thinking on the subject…fewer events does not equal less demand. In fact, it’s just the opposite, where reduced sales lead to increased demand at both a) Full Price and b) the reduced number of Flash Sales.


Chart 1 – 1Q15 Daily Reach and Attention spread for

KATE – Completely On Track, Across Durations - KATE 1Q15 reach


In total there were 4 events that accounted for big spikes in traffic in both 1Q15 and 1Q14. The makeup of those sales differed in each quarter. 1Q15: 2 ‘Flash Sales’, 25% off new collection (which occurred last year), and a more generic ‘New Markdowns’ sale. 1Q14: 3 ‘Flash Sales’ and 1 ‘Friends and Family’ event (chart 2 below).


Last year the company pulled one sale forward, the ‘Friends and Family’ event, from April to March as an attempt to capture sales that would have otherwise been pushed into 2Q because of a late-April Easter. The fact that the company didn’t see the need to repeat this sale in 1Q of this year, gives us a lot of confidence that the company is cranking on its internal plan.


It’s also important to point out that these ‘Flash Sales’ are not Gross Margin dilutive because much of the product is designed specifically for this channel. Meaning margins should be in good shape as the company works to improve quality of sale.


Chart 2 – 1Q14 Daily Reach and Attention for

***chart note: these are absolute values and do not reflect the YY spread.

 KATE – Completely On Track, Across Durations - kate 1Q14 reach 


Market Share

Lastly, a point on market share. KATE still doesn’t have much of it, just 3%-4% in the US. And the company is continuing to grow its footprint and customer base as it fills out its category and distribution platform. That’s probably best demonstrated by Chart 3. This shows the reach (% of total internet users) visiting on each day over the referenced time period. The growth in its user base on a relative basis reflects the strength we've seen from the e-comm channel over the past 18mnths +. And for KATE, with over 20% of its sales already captured through the online channel it can’t be explained away by a shift in the way consumers shop.


Chart 3 –Daily Reach for (August 2013 – July 2014, August 2014 – April 2nd 2015)

KATE – Completely On Track, Across Durations - Kate reach


Early Look

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