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Keith's Macro Notebook 5/7: Bonds | Euro | Asia


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

Keith's Daily Trading Ranges [Unlocked]

This is a complimentary look at Daily Trading Ranges - our proprietary buy and sell levels on major markets, commodities and currencies sent to subscribers weekday mornings by CEO Keith McCullough. It was published this morning at 7:31am ET. Click here to learn more and subscribe. 

Keith's Daily Trading Ranges [Unlocked] - z charts55


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BABA: IPO Yo-Yo (F4Q15)

Takeaway: Marked improvement off a weak F3Q15. The mobile debate remains in focus; while the setup gets progressively worse starting F2Q16.


  1. 1Q15 = MARKED IMPROVEMENT: China Retail revenue growth accelerated off F3Q15, despite a slide in total GMV growth to 40% y/y (vs. 49% in the prior quarter).  Commission revenue growth held steady from the prior quarter off a rebound in Tmall Mix (y/y change); suggesting the company may be making improvement in Tmall uptake on the mobile platform.  Marketing improved off a moderating y/y decline in desktop take-rates.  The biggest surprise from the quarter (for us) was the surge in average spending, which was up 6% y/y on a TTM basis.  We can’t explicitly calculate the quarterly trend off the reported data, so we’re not sure if this is the beginning a of positive inflection, or a mirage from the GMV strength earlier in F2015.
  2. THE MOBILE DEBATE: Can mobile monetization rates catch up to desktop, particularly on the advertising side since?  We believe much of the improvement on mobile take-rates has to do with the migration of consumer traffic (ad click volume) to mobile.  Management suggested as much on the call, but also spoke to improving demand from merchants for mobile advertising.  The latter is encouraging, but we have a hard time believing that mobile will approach desktop rates that are more than double that of mobile.  Traffic has been the predominant driver of growth, and mix is already over 83% of active shoppers (vs. 64% in the prior year).  See note below for detail.
  3. IPO YO-YO: BABA beat top-line estimates by 5% in F2Q15; consensus estimates rose in response.  On the F3Q15 print, BABA missed by -5%, then estimates came down significantly.  BABA just beat F4Q15 revenues by 4% on reduced consensus estimates, and we’re expecting consensus revenue to shoot back up in response.  Note that the prior estimate cut following the F3Q15 release was concentrated into F4Q15 and F1Q16, so if estimates do rise as we expect, the setup will get progressively worse starting in F2Q16.    

BABA: IPO Yo-Yo (F4Q15) - BABA   Tmall GMV   F4Q15

BABA: IPO Yo-Yo (F4Q15) - BABA   Tmall vs. GMV F4Q15

BABA: IPO Yo-Yo (F4Q15) - BABA   Avg GMV 4Q15

BABA: IPO Yo-Yo (F4Q15) - BABA   Mobile Mix F4Q15

BABA: IPO Yo-Yo (F4Q15) - BABA   Marketing vs. Active Buyer 4Q15


BABA: The Mobile Debate

03/04/15 10:34 AM EST

[click here]



Let us know If you have any questions or would like to discuss in more detail.


Hesham Shaaban, CFA



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Takeaway: Benefiting from releasing Q1 after most Macau, MPEL doesn't miss. Margins were a positive surprise.




  • Macau still weak demand environment
  • Control operating costs
  • Gained RC volume share in 1Q
  • Improved mass share in April
  • Non-gaming entertainment - MPEL the leader
  • Studio City: on budget, on time (targeting Q3 but not a hard target) - management seemed to hedge on this. We think a Q3 opening is not in doubt
  • 79% of mgmt team are locals
  • CoD Manila:  customer database very strong. Hotel occupancy at 75%. Mass market strong.  VIP junkets will open in coming months.
  • Property EBITDA margin (including CoD) 24.3% compared with 28.8% in 1Q 2014, 25.1% in Q4 2014.
  • Property Macau margins: 25.5% , unchanged QoQ
  • Q1 2015 hold-adjusted EBITDA:  benefited from $6m of better luck overall ($12m better hold at CoD offset by $6m lower hold at Altira)
  • CoD building lease 1Q 2015: US$7m 
  • 2Q 2015 guidnace
    • D&A: $110-115m
    • Corp expense: $32m
    • Consolidated interest expense: $40m ($11m relating to CoD Manila, $37m capitalized interest)

Q & A

  • Govt has engaged with MPEL on gaming policy (e.g. smoking ban, tourist visa)
  • CoD Manila:  quite pleased with how it's tracking.  Grand opening on Feb 2. Manila is a market where competitors are much more aggressive with regards to reinvestment rates.  But promotions/giveaways have tapered down recently.  Junket VIP now beginning to ramp up (big operator opening this weekend).
  • Dividend policy: prudent in setting initial dividend policy.  Comfortable maintaining dividend. 
  • Studio City: non-gaming attractions are different from CoD. Believe they will be profitable there as stand-alone.
  • Sees further efficiencies on a EBITDA per table
  • Doing a little bit better than Macau market on VIP contribution
  • On a QoQ basis, saw increase in mid-tier premium mass segment. Comped 100 more rooms in Q1 in mid-tier premium mass segment to boost occupancy.
  • Long-term outlook on Macau hasn't changed
  • Macau Margins:  had identified issue of VIP deterioration spreading to premium mass segment.  In April, had best mass share in last 2 years
  • Premium mass hold rate: quite happy
  • Smoking ban impacted mass gaming floor. Mass Hold % averaged down with lower betting levels (due to changes to in mix of customers).  Should be able to sustain mass hold % (seeing improvement in April)
  • CoD & MSC have own non-recourse agreements. These debt deals make it very difficult to move tables from one property to the other.
  • Has 2 out of the top 5 junket operators. Hopeful to add one more top 5 junket in Philippines. Had soft junket opening in April.
  • CoD Macau: got table allocation 4-6 wks before opening
  • Phillipines: longer-term could be another Vegas or Singapore. 

RTA Live: May 7, 2015

Here is the replay of today's edition of RTA Live.



Our Starting Point

This note was originally published at 8am on April 23, 2015 for Hedgeye subscribers.

“The fact is our starting point.”



I’m not a big Aristotle fan, but I like some of his simpler quotes. In Global Macro risk management (and in life), I like to boil things down as simply as I can, or I don’t feel like I understand them well enough.


The aforementioned quote is one that Ed Hess used to introduce Chapter 7 of Learn or Die, “Critical Thinking Tools.” In both the chapter and the book, Hess leans on Dr. Gary Klein’s RPD (Recognition-Primed Decision) Model.


Klein has developed three tools that can increase the probability that we’ll be able to “see” and process new or disconfirming data and mitigate our cognitive blindness and dissonance (pg 75).” Being a data driven #process guy, I’m all for trying that.

Our Starting Point - 10 yr yield cartoon 04.20.2015


Back to the Global Macro Grind


Our starting point is last price. I know that sounds simple. It should. Our best starting point for evaluating new, confirming, and/or disconfirming “data” is to get Mr. Macro Market’s cumulative opinion on whatever that data is perceived to be.


“Klein found that people in high-velocity environments, where speed of decision making is important, generally don’t take the time to generate alternatives and then weigh the pros and cons of each (or engage in a probability evaluation). Instead, they engage in fast pattern matching.” (pg 76)


Sound familiar? We’ve all done this at some point in our careers. Some people in this profession probably still do it in trying to process every macro headline, every day!


“So”, try not to do that.


Let’s start this morning with some fast pattern matching (and see if any of it matches):


  1. Both US Existing Home Sales and weekly US mortgage demand data surprise to the upside (again)
  2. SP500 reverses its early morning losses to close within 0.5% of her all-time highs
  3. Bond Bears claim Housing data is “too good”, so the Fed needs to raise rates (rates rise, bonds fall)


Throw a little extra headline sauce in there like “Bill Gross Says Short Of A Lifetime” (yesterday he was talking his book to all mainstream media outlets who would listen) on German Bunds, and you saw the worst down day for the G-10 Bonds, in a month.


But, if you’re not flash crashing your P&L with every tick of the New Tape (Twitter)… and you take a step back (breathe)… does that sequence of pattern matching with very immediate-term price action make sense?


Do people who shorted Bunds and Bonds on the lows yesterday actually think that:


A)     The Fed is going to change their statement on April 29th due to the Existing Home Sales print and/or

B)      Thwart one of the few things they can currently take political credit for (#HousingAccelerating) by raising rates?


I remain bullish on both Long-Duration Bonds (TLT, EDV, MUB, etc.) and Housing (ITB, DHI, MTG, etc.), so you can argue that I am dead wrong on this due to my own cognitive blindness. But that’s what makes a market.


Another thread of short-term pattern-matching that was bearish for sovereign bonds yesterday goes something like this:


  1. “The European economy is booming”
  2. German economic growth will force Draghi to back off QE
  3. European Bond Yields can only rise now, as a result


Oh, then there’s this stuff called the global (not local) economic data this morning:


  1. Chinese and Japanese PMIs for APR slow (again) to 49.2 and 49.7, respecitvely
  2. Germany’s PMI slowed (for the 1st time in months) to 51.9 APR vs. 52.8 last
  3. France’s PMI (which never accelerated to begin with) slowed, again, to 48.4 in APR vs. 48.8 last


In other words, the Italian (Draghi) needs to provide the French with moarrr cowbell!


In psychology, Cognitive Dissonance is the mental stress or discomfort experienced by an individual who holds two or more contradictory beliefs, ideas, or values, at the same time…” –Wikipedia


The fact is that Bond Bears need one very simple thing to be as right as we were on US #RatesRising in 2013 – and that’s real economic #GrowthAccelerating. Meanwhile (not to be confused with centrally planned stock market ramps), Global Growth continues to slow.


We believe that, with neither growth nor inflation accelerating (intermediate-term TREND), the Long Bond Bears will continue to lose money. Our starting point on that Macro Theme is what Mr. Macro Market has been discounting now, for 15 months.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 1.84-1.99%
SPX 2090-2117
RUT 1252-1275

EUR/USD 1.05-1.08
Oil (WTI) 50.04-57.78
Gold 1181-1208


Best of luck out there today – Go Rangers!



Keith R. McCullough
Chief Executive Officer


Our Starting Point - 04.23.15 chart

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