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Who Really Knows?

This note was originally published at 8am on April 29, 2015 for Hedgeye subscribers.

“Our greatest power is that we know that we don’t know.”

-Ray Dalio


Do you really know what the Federal Reserve is going to say today? I don’t. If you do, with 100% certainty, please don’t call and/or email me with that information. I don’t want to go to jail.


Having witnessed some characters in this business take on orange-jump-suit-risk to get what some of them call “edge” (i.e. inside information), I’ve spent my entire career trying to build a #process that doesn’t need short-cuts (i.e. cheating).


That puts me in a position of really not knowing what I’m not supposed to know. Instead of selling you certainty, it forces me to embrace uncertainty… and probability weight each and every decision I make based on the most recent data and market pricing.

Who Really Knows? - Fed doves cartoon 04.21.2015


Back to the Global Macro Grind


We had our company meeting yesterday. We do one every quarter. It’s usually lunch and 3-4 hours of thought leaders at Hedgeye thinking out loud about #process: what’s working; what’s not – what can we do next. #BestPractices


The best part about these meetings is the element of surprise. When you have 57 thoughtful people in a room who have decided to open their minds to learning, a lot can happen in an afternoon. Who can really make you challenge yourself and think?


Our veterans (Daryl Jones, Howard Penney, and Tom Tobin) stepped up and delivered the wood on that front yesterday. In fact, I don’t think I’ve ever seen objective and critical self-reflection like that – back to back to back.


You can call us a cult. But we call ourselves a team.


During yesterday’s meeting, circa 3:15PM, one of our analysts slammed his laptop and left the room in a frenzy. This had nothing to do with Penney telling Hesham Shaaban to “embrace meditation” – one of his Best Short Ideas, Twitter (TWTR) was blowing up!


Fat finger on the pre-market close release. Stock down 18% in a New York minute. Halted. #Boom!


And the Hedgeyes smiled.


There’s something about building an independent think tank that prides itself in SELL ideas that gets me up in the morning. As most of you know, building a repeatable #process on the short side is not an easy thing to do. That’s why we’re doing it.


At one point in the QA session of the meeting, I was asked what our “pipeline of prospective analyst hires” was looking like. And, for the first time, instead of rattling off names of people we’re interviewing, I said I just wanted to see more of our rookies play.


Not only do the “young” guys/gals at this firm get how to not be certain about anything, they know how to build a battle-tested #process that allows them to probability weight both the accuracy and timing of their research ideas.


While you can criticize Shaaban for literally never having presented a Best Long Idea (yet), he’s nailed the following names to the proverbial NHL playoff boards in the last 18 months (i.e. since we let him start publishing on his own names):


  1. Weight Watchers (WTW)
  2. eHealth (EHTH)
  3. Pandora (P)
  4. Yelp! (YELP)
  5. Alibaba (BABA)


In other words, what he really needs next is to get run-over in one of these things. Because no analyst I have ever worked with stays this good (on the short side) for this long, in an up market!


I obviously don’t want the man to get crushed. But reality is that everyone gets tagged in this business, eventually – and that’s how we all learn. But if you listen to Shaaban talk through his ideas, he’s constantly talking about not only what he doesn’t know… but what the management teams he follows don’t know either.


And that, my friends, is how you get really good at this game.


That’s how you beat the guys who take the short-cuts, cheat, and have no other process than asking “management” what the numbers are. When management doesn’t know what they don’t know – the fundamentally driven research analyst who thinks for himself wins.


As for what macro “management” (The Fed) really knows… Cyclically, do they get that the US is #LateCycle? Secularly, do they get global demand is slowing due to #DemographicYields? We’ll see.


Our immediate-term Global Macro Risk Ranges (with intermediate-term TREND views in brackets) are now:


UST 10yr Yield 1.85-2.02% (bearish)
SPX 2095-2126 (bullish)

RUT 1248-1277 (bullish)
DAX 11651-12098 (bullish)
VIX 11.89-14.82 (neutral)

USD 95.63-97.83 (bullish)
EUR/USD 1.06-1.10 (bearish)
YEN 118.55-120.81 (bearish)
Oil (WTI) 52.61-58.30 (bearish)
Natural Gas 2.44-2.62 (bearish)
Gold 1181-1215 (neutral)
Copper 2.65-2.83 (bearish)


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Who Really Knows? - z 04.29.15 chart

McCullough Slams Harry Reid on Online Gambling: 'He Should Get an Internet Connection'

Can you smell the cronyism? Sen. Harry Reid (D-Nev) is officially backing Las Vegas Sands CEO Sheldon Adelson’s push to ban online gaming. Hedgeye Risk Management CEO Keith McCullough responds to the news on Fox Business with "Opening Bell" anchor Maria Bartiromo.

the macro show

what smart investors watch to win

Hosted by Hedgeye CEO Keith McCullough at 9:00am ET, this special online broadcast offers smart investors and traders of all stripes the sharpest insights and clearest market analysis available on Wall Street.

VIDEO | Will Rising Rates Derail the Housing Train?




Hedgeye Macro and Housing Analyst Christian Drake sits down with Macro Analyst Ben Ryan to discuss the hot topic of rising rates and the housing market.


Drake explains the trend in rates, its real impact on the housing market and what we can expect going forward. One key takeaway is that rates impact affordability of a home, not the decision to buy a home.

Listen to the Levels (Raising Cash)

Listen to the Levels (Raising Cash) - 88


If you can’t make money in stocks or bonds, what do you do?


This is one of the main reasons we have been steadily raising cash to the highest level in our Hedgeye Asset Allocation Model of the year.


62% to be precise.


Over in Europe, stocks continue to break our immediate-term TRADE lines of support with the German DAX leading losers this morning down -2.3%. If ECB Mario Draghi lets Euro rates do this, he’ll let stocks drop faster. 


Listen to the Levels (Raising Cash) - 56

LEISURE LETTER (05/12/2015)

Tickers:  WYNN



  • May 13 - IGT 1Q CC 8am, ; PW: 2660253

  • May 14 - Genting Singapore 1Q CC  6am

  • May 14 - Macau Legend Development 1Q CC 8:30pm


WYNN - The largest individual shareholder, T.Rowe Price, in Wynn Resorts Ltd has cut its stake by almost 40%, according to a filing to Nasdaq on Monday. TRowe now holds 10.4 million shares of WYNN, down from ~17.1 million it held .


 Takeaway: Long only's finally capitulating in Macau stocks?


GC.CN - Great Canadian Gaming to acquire Casino New Brunswick for ~$95M. The purchase price represents an acquisition multiple of approximately 8.0x – 8.5x the casino's 2014 normalized EBITDA. Closing is expected to occur in fall of 2015.


Universal Entertainment - The Philippine gaming regulator (PAGCOR) has confiscated a PHP100-million (US$2.2 million) guarantee payment from Tiger Resort, Leisure and Entertainment Inc – developer of casino resort Manila Bay Resorts (pictured in a rendering) – citing delays in the project.


Francis Hernando, VP of PAGCOR said that the provisional gaming licence is in danger of being suspended because Tiger Resort has not met the minimum requirement of 50 percent project completion by the March 2015 deadline.

In February, Tiger Resort sought for an extension of the deadline to the second quarter of 2017, citing changes in the design of the casino project – a request denied by Pagcor, the news agency reports.


Takeaway: Okada's Philippines project is in serious trouble.


Viking - Delivery of Viking Sky has been rescheduled from June 2016 to February 2017.


Singapore licenses - Singapore has "no plans" currently to offer additional casino licenses when the moratorium on such licences expires in 2017, Senior Minister of State for Trade and Industry Lee Yi Shyan said yesterday.


The Government will instead focus on working with the two integrated resorts (IRs) to ensure their attractions and services continue to meet the needs of Singaporeans and enhance the country's tourism appeal, he added in Parliament.



Macau Cash Handouts - The head of the Social Welfare Bureau, Iong Kong Io, said yesterday that the government does not intend to bring an end to its cash handout program next year, Radio Macau reported. “I don’t think the cash handout program will be canceled. The government is assessing this matter according to its budget; so the cash handout value will either decrease or be maintained,” he stated.



Iowa SS April Gaming Revs: -2% YoY


Puerto Vallarta port calls canceled - Civil unrest and violence around Puerto Vallarta led to cruise lines canceling ship calls there.



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.