“What I do have are a very particular set of skills.”

-Liam Neeson, Taken


Officially, the Taken film franchise is a trilogy. The 1st installment was a deservedly acclaimed action-suspense juggernaut with Liam Neeson launching what has been affectionately dubbed the “geri-action” star genre.


Unofficially, there are probably more like 6-10 Taken movies.  The high concept mystery-action airplane drama, Non-Stop, was essentially Taken on a plane.  The survival thriller The Grey was basically Taken in the woods, and the 2011 psycho-drama Unknown was more or less Taken with amnesia.  I’m sure there are others.  


The industry, I suppose, is simply supplying to the emergent demand and Neeson, after decades in the business, is simply capitalizing on an unlikely late career renaissance.  

Taken - DRAKE   LIAM


Back to the Global Macro Grind...

  • Fed is overoptimistic on growth forecast à dots get pushed out
  • Domestic and global growth (& inflation) disappoint à yields = lower for longer
  • 1st qtr GDP shows residual seasonality  à balance of year is better but full year shows we’re a 2% +/- economy. 
  • The U.S. decouples à ….until it doesn’t


If you feel like you've seen this Macro movie before, you’re not mis-Taken.


A  fascinating and sometimes confounding aspect of being a living participant in a Keynesian Eco Carnivale is that, at times, it’s difficult to tell which way is up.


In the Chart of the Day below, we annotate the latest household Income and Spending numbers for March released yesterday.  


Generally, our Macro-for-Dummies/Lazy’s color-coding protocol follows a green = good, red = bad convention.  Over the last couple quarters, however, I’ve struggled with what colors to use to characterize the existent income and spending dynamics.


Income ↑, Savings ↑, Spending ↓:  In recent months, aggregate wage and disposable income growth has been accelerating alongside a commensurate rise in the savings rate to multi-year highs.  The net of those dynamics has been further middling in aggregate consumption.    In other words,  while the capacity for consumption growth has improved alongside accelerating income, the ongoing rise in the savings rate has muted the translation to actual household spending growth. 


Is this good or bad?


In a Keynesian framework, total spending is paramount and the dearth of demand should be construed as a negative immediate-term development.  At the same time, however, it’s difficult to characterize accelerating income growth, a rising savings rate and moderate credit growth alongside increased investment as a fundamentally negative development for the populous balance sheet or the prospective durability of the expansion. 


How did spending and Income close out 1Q?


Income ↓, Savings ↓, Spending ↑:  The savings rate saw its largest sequential drop in a year in March and spending grew at a premium to income for the first time in 8-months while aggregate disposable and salary and wage income growth moderated for a 2nd month.   Inflation-adjusted disposable income actually declined -0.2% on the month while, on the spending side, a strong rebound in durables consumption growth buttressed headline spending against sequential softness in Services consumption and a modest gain in non-durables.  


There a few takeaways from the March numbers:

  1. Income:  the sequential deceleration in aggregate income growth wasn’t particularly surprising given the soft NFP number for March and the large contribution to personal income from dividends recorded in February.
  2. The Thaw:  the increase in spending and decline in savings lends (some) support to the view that the pace of domestic consumerism was stymied by unusually severe weather.   The re-acceleration in auto sales in March and marked rebound in housing activity in March/April are also supportive of the deferred consumption narrative.
  3. Inflation:  Core PCE inflation – the Fed’s preferred measure – accelerated modestly for a second month to +1.34% YoY in March.  The core PCE and CPI figures along with similar readings out of the billion prices index, a moderation in the $USD’s ascent, the counter-trend move in oil prices and the ramp in breakevens/inflation expectations, should buoy the Fed’s rhetorical expectation for stable to improving price trends. Also, the ECI data (note: the ECI data is a more comprehensive measure of employee compensation as it includes both wage income and benefits) for 1Q released yesterday showed employing compensation rising +0.7% in 1Q  and growing at the fastest pace in the current cycle.  This is a mixed bag.  For the Fed it augers (eventual) upside for consumer prices.  For many businesses, the prospect of accelerating inflation in the largest input cost in the face of a flat to decelerating topline probably does not augur upside in capex or profitability. 
  4. The Bounce:  Residual seasonality, weather, port-shutdowns, strong dollar, flagging export demand, and the cratering in energy sector investment have all been trotted out – with some justification – as a conspiratory cocktail of collective drag on economic activity in 1Q.  The traversing or moderation in each of those factors – and the now easy comp – should support a rebound in reported growth in 2Q.  Will the rebound be similar in magnitude to that observed in 2014?  Perhaps, but the early evidence isn’t particularly inspiring. 


What do you do with these divergent macro vectors from an investment standpoint?  Probably not a whole lot until we get the employment river card next Friday.  


While we like to think we have a “particular set of skills”, the expectation for 20-20 macro forecasting vision is quixotic.  As Keith highlighted yesterday, sometimes the cacophony of macro crosscurrents breeds confusion more than high probability opportunity….and “going to cash beats confusion.”


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 1.86-2.08%

SPX 2075-2106
VIX 13.03-14.99
USD 94.32-97.46

Oil (WTI) 53.38-59.93

Gold 1169-1204 


Sunny & 70’s on tap for the Northeast.  Enjoy the weekend.


Christian B. Drake 

U.S. Macro Analyst


Click image to enlarge. 


REPLAY | $ATHN Best Long Idea Q&A with Healthcare Sector Head Tom Tobin

Hedgeye Healthcare Sector Head Tom Tobin and Analyst Andrew Freedman hosted a live Q&A session today today exclusively on Hedgeye TV. 


They discussed athenahealth (ATHN) quarterly results, our long term bullish thesis and provide additional insight into the Trinity deal before taking questions from viewers.






The Kinder Conundrum

This note was originally published at 8am on April 17, 2015 for Hedgeye subscribers.

“Market values are fixed only in part by balance sheets and income statements; much more by the hopes and fears of humanity; by greed, ambition, acts of God, invention, financial stress and strain, weather, discovery, fashion and numberless other causes impossible to be listed without omission.” – Gerald Loeb, The Battle for Investment Survival




After rolling up its MLPs in December 2014, Kinder Morgan Inc. (KMI) is now the third-largest energy company in the S&P 500 by enterprise value ($137 billion) and fourth-largest by market cap ($95 billion).  It’s also one of the more polarizing names out there – you either love it or you hate it.


KMI kicked off the earnings season for the energy sector on Wednesday, and with KMI being a relatively new and large name in many portfolio managers’ benchmarks, we figured that the generalists that subscribe to the Early Look would be interested in, and benefit from, our latest thoughts on KMI – the company and the stock.  Regarding the former, the commentary below was sent to our Energy sector subscribers yesterday:


The Kinder Conundrum - kmi


“In its 1Q15 report … Kinder Morgan Inc. (KMI) declared a quarterly dividend of $0.48/share, reiterated its 2015 dividend target of $2.00/share, and emphatically reiterated its long-term dividend growth guidance of 10% p.a. through 2020.  KMI bulls need not read any further.


The quarter was soft overall as the more-commodity-sensitive segments of CO2 and Natural Gas Pipelines posted a combined 5% YoY decline in segment cash flow.  Adjusted EBITDA came in at $1,743MM, down 1% YoY and missed the consensus estimate of $1,861MM by 6%.  EBIT was $1,193MM, down 5% YoY.  Pre-tax earnings were $679MM ($0.31/share), down 16% YoY.  (All metrics are "before Certain Items.")  


KMI incurred ~$935MM of CapEx in the quarter, $104MM (11%) of which was classified as sustaining / maintenance.  It spent ~$3.2B on acquisitions, ~$3,060MM on Hiland and ~$160MM on the Vopak terminals.  The Hiland acquisition closed on February 13th, so it was a significant contributor to the 1Q15 numbers.


Free Cash Flow (defined here as EBITDA – net interest expense – CapEx) was ~$295MM or $0.14/share.


Rich Kinder remarked on the call, “…our enormous footprint and our diversified set of mostly fee-based assets can produce very good results, even in times of tumultuous market conditions.”


Very good results?


EBITDA and EBIT were down YoY in 1Q15 despite $9.4B of capital invested since the start of 2014 ($5.0B of CapEx – ~$1.0B per quarter – and $4.4B of acquisitions).  That’s mediocre, at best.


What is exceptional about KMI is 1) its valuation at 20x EV/EBITDA, 29x EV/EBIT, 35x P/E (pre-tax!), and a 1.3% FCF yield (all metrics are 1Q15 annualized); 2) its leverage at 6x debt/EBITDA and 9x debt/EBIT; and, of course, 3) its dividend payout ratios at +230% of net income and +150% of pre-tax income.”     




Here’s our opinion of KMI – the company – in as succinct of a form as possible, a 140 character #tweet:


MegaCap energy conglom. Capital intensive, cyclical, competitive. Avg ROIC. Super-levered. Low organic growth. Roll up. Ponzi divi.


And all of that really isn’t that hard to see.  Which of those points could you convincingly argue the other side of? 


The debate and difficulty lies in what to do with KMI the stock here. 


Our current view, one that is, of course, subject to change, is that it’s just one to watch from the sidelines.  We apologize to the bulls for not joining the rest of the sell-side in the Rich Kinder booster club, and to the bears for not betting on the imminent collapse of the evil empire, but the risk / reward set-up does not warrant action at this time and price. 


The challenge on the short side is that the higher KMI’s valuation, particularly relative to its peer group, the more “accretive” each acquisition will be.  Say what you want about this growth strategy (and we suggest you re-read Buffett’s thoughts on it on pages 29 and 30 of the latest BRK letter!), but the market has bought into it and it’s going to work until it doesn’t. 


Reflexivity is clearly at work; we’d consider a short position in KMI on the way down.  But for now, we’re interested in playing KMI’s well-advertised acquisition ambitions via second derivatives.  More on that to come…


We’ll leave it there on this battleground stock.  If you own KMI, we hope that you at least know what you own!


Enjoy the weekend,


Kevin Kaiser

Managing Director

The Kinder Conundrum - 04.17.15 chart

Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.52%
  • SHORT SIGNALS 78.70%

Darius Dale: #NFLDraft “Stock Picking”

Hedgeye’s very own all-star offensive lineman and former NFL prospect himself Darius Dale (Yale c/o 2009) provides his insider’s perspective on this year’s offensive line draft class.


In addition to knowing a thing or two about global macro ... #DaleKnowsFootball.


CLICK HERE to access the presentation; the long/short investment recommendations may shock you.


Because games are won and lost in the trenches...


Darius Dale: #NFLDraft “Stock Picking” - dale



Takeaway: Margin improvement drove FY guidance slightly higher. LV Locals missed expectations.



  • Non-gaming initiatives working out
  • Consumers growing more confident and spending more
  • Locals market solid- non-gaming grew in 7th consecutive quarter.  Orleans and Suncoast did well. 
    • EBITDA fell due to $1m disruption at Suncoast (will continue until road work ends in June). 
    • Sports book win down 80% related to Super Bowl bets
  • Downtown LV:  solid Hawaiian play and increased Fremont Street. Non-gaming up 3%. Lower fuel costs from Hawaiian service.
  • Regionals:  Kansas Star (improved marketing plans).  IP (strong flowthrough). Blue Chip (revenue and EBITDA grew). Treasure Chest (revs up 8% thanks to visitation and slot play). Par-a-Dice:  adapting to new competitive landscape well. Delta Downs (well ahead of expectations, strong visitation from core customers)
  •  Borgata:  $5.5m property tax benefits; solid gaming volumes; more cost efficiencies. Contributed to 14,000 more room nights in 1Q.  
  • AC Same-store gaming revenues grew 5% in 1Q 2015
  • Customer is changing:  younger demographic of customers; need to reposition non-gaming amenities
  • Cash room rates at LV: +14%
  • Orleans/Blue Chip renovation scheduled to be completed by end of 2015
  • 20 new F&B concepts will open in next 12 months
  • Debt reduced by $80m in 1Q
  • 1Q capex: $19m ($7m Peninsula, $5m Borgata); will meet previously issued FY capex ($100m maintenance (Boyd), $15m maintenance (Peninsula) $45m project capex, Borgata around $25m)
  • Guidance raised:  
    • Expect LV road construction to impact 2Q (about ~$1mm)
    • Expect LV Locals and Downtown EBITDA to grow 2-3% : also for Q2
    • Expect Midwest/South EBITDA to grow 3-4%: also for Q2
    • Expect Borgata EBITDA ($160-165m) 
  • Borgata leverage ratio: 4.2x (down from 7.0x leverage in March 2014)

Q & A

  • Margins are sustainable, particularly in payroll/marketing
  • Delta Downs:  through April, continue to be very strong
  • LV Q2: trends from Q1 are continuing into Q2.  April is similar to Q1. May is looking good. June is looking soft. Nothing that gives them concern. 
  • REIT option - continue to evaluate
  • LV Downtown: cost cuts (half of it was due to lower fuel costs)
  • Raised FY guidance all due to stronger Q1 results
  • Pacquiao fight and Rock in Rio:  will take advantage by levering up rates
  • Slot replacement cycle is fairly normal

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.