This note was originally published at 8am on May 01, 2015 for Hedgeye subscribers.

“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. 


Equities and Bond Yields

Client Talking Points


Bank of Japan (BOJ) Governor Kuroda was up all night talking and talking about his central planning and while he didn’t do anything, JGBs (10yr) did – they are down 5 basis points to -0.39% (their biggest move higher in a month); the Yen is down -0.4% vs USD. And the Nikkei likes this, up +0.8% to +13.9% year-to-date (of the majors, Nikkei looks better than both the DAX and S&P 500 right now).


Global Yields are down -3-5 basis points this morning; the UST 10YR is -4 basis points at 2.19% (which is right around where it started the year – fun trip); immediate-term risk range is still very wide at 1.95-2.31%; that’s a leading indicator for more bond market volatility. 

S&P 500

All-time closing high of 2121 yesterday for the S&P 500 and while we certainly didn’t call for that, that doesn’t mean we don’t think you keep selling  on green ahead of what we’re expecting to be a volatile/illiquid summer; especially bearish on Consumer stocks – U.S. Retail (XRT) -0.7% on the up day as the consumption data rolls over from #LateCycle highs.

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

All-time closing high of 2121 yesterday for the S&P 500 and while we certainly didn’t call for that, that doesn’t mean we don’t think you keep selling  on green ahead of what we’re expecting to be a volatile/illiquid summer; especially bearish on Consumer stocks – U.S. Retail (XRT) -0.7% on the up day as the consumption data rolls over from #LateCycle highs.


iShares U.S. Home Construction ETF (ITB) is a great way to play our long housing call. It was a relatively light data week for housing with weekly mortgage application data and the March employment report offering incremental updates on the current state of housing demand.  On the market side, interest rate volatility remained a concern for the public homebuilders but one we believe remains shorter-term in nature absent another expedited, step function increase in interest rates. We think the rate related pressure will be largely transient unless we see a further back-up in mortgage rates on the order of +50-100bps from here – a potentiality we would not view as probable at this point. On the fundamental side, the drumbeat of improvement remains ongoing.


The U.S. dollar has gone on a big reversal since the Fed’s March 18th meeting. Since the meeting, the dollar has moved lower and rates higher. This short-term move in rates has caused confusion with respect to our lower for longer call. Put simply, we have been wrong on the direction of our four macro tickers in the newsletter. A continuation of this trend will force us to re-evaluate the longer term call.


Three for the Road


Japanese Gov Bond Yields (10yr) have their biggest pullback day of the month -5bps = 0.39%



Man is not the creature of circumstances. Circumstances are the creatures of man.

Benjamin Disraeli


A report released today by the Bureau of Justice Statistics (BJS) shows there were 15.1 police officers per 10,000 U.S. residents in 2013 which is down from 15.4 police officers per 10,000 residents in 2007.  

CHART OF THE DAY: U.S. Dollar TREND (3 Months or More) vs. TAIL (3 Years or Less)

Editor's Note: The chart and blurb below are from today's Morning Newsletter written by Hedgeye CEO Keith McCullough. Learn more and subscribe today.


CHART OF THE DAY: U.S. Dollar TREND (3 Months or More) vs. TAIL (3 Years or Less) - z 05.15.15 chart


...Since I write every day, I spend a lot of time trying to contextualize the TRADE (3 weeks or less) within the TREND (3 months or more). But especially during times like these, it’s critical to attempt to have a view of what TRENDs are doing within long-term TAILs....



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Ceaseless Attention

“In order to lead an army, you have to ceaselessly attend to it.”

-Napoleon Bonaparte


The way my typical day goes is as follows: ceaseless attention to Global Macro market moves, news, and analysis in the morning – meetings in the afternoon – and, family, hockey, and #history (in that order) in the eve.


The compare and contrast of the macro morning to a history book at night couldn’t be more drastic. Before bed last night I was enthralled in early 19th century European history (Napoleon, A Life). This morning I feel like I’m watching a version of it 200 years later.


I don’t do it because it’s cool. I do it because I love it. I do this because I’ve realized that every book I read reminds me how much I don’t know. And since I’m leading an independent army against an Old Wall guard that seems to know everything, there’s work to do.


Ceaseless Attention - 80


Back to the Global Macro Grind


Can you contextualize immediate-term market moves within the intermediate-term? How about the long-term? What is the long-term? Is it 3 years or 200? If you could know everything about everything, across durations, I’m betting you would.


Since I write every day, I spend a lot of time trying to contextualize the TRADE (3 weeks or less) within the TREND (3 months or more). But especially during times like these, it’s critical to attempt to have a view of what TRENDs are doing within long-term TAILs.


We define longer-term TAILs as having a duration of 3 years or less. I use that time horizon because A) I really suck at calling things 3 years out and B) unless they have permanent Buffett-like capital, mostly everyone else does too.


So today, to keep it simple, I just wanted to give you my TREND vs. TAIL views, across Global Macro:


  1. US Dollar = bearish TREND; bullish TAIL
  2. The Euro = bullish TREND; bearish TAIL
  3. Japanese Yen = bearish TREND and TAIL
  4. US 10yr Treasury = bullish TREND and TAIL
  5. US 30yr Treasury = bullish TREND and TAIL
  6. Japanese Government Bond (10 yr) = bullish TREND and TAIL
  7. SP500 = bullish TREND and TAIL
  8. Russell 2000 = bearish TREND; bullish TAIL
  9. US Equity Volatility (VIX) = bullish TREND and TAIL
  10. Nikkei = bullish TREND and TAIL
  11. German DAX = bullish TREND and TAIL
  12. BSE Sensex = bearish TREND; bullish TAIL
  13. CRB Commodities Index = bullish TREND; bearish TAIL
  14. Oil (WTI) = bullish TREND; bearish TAIL
  15. Gold = bullish TREND; bearish TAIL


I better stop there, or I am going to confuse you. I used to get confused by intermediate-term TREND views disagreeing with longer-term TAIL ones. But after building, breaking, and re-building my #process, I don’t dwell on the non-linearity of it all as much.


Most of our confusions have to deal with our own emotional baggage. We are humans, after all. And when something goes one way for a period of time that we think we understand – then it goes the other (that we don’t understand), we get frustrated.


That makes our collective challenge to see the macro market for what it is, as opposed to what we’d like it to be. This is not easy. And it gets a heck of a lot harder if we don’t do the longest of long-term #cycle work to contextualize the “de-couplings.”


I wrote about why I think USD continues lower from an intermediate-term TREND perspective yesterday (Commodities, Oil, Euro, etc. higher), but I didn’t spend any time on why it could strengthen after easier Fed policy and slower growth is baked into consensus.


The longer-term case for:


A) US Dollar Index to put in a long-term-higher-low at around 89-90 on the USD Index (EUR/USD 1.19-1.20)

B) Commodities (CRB) Index to put in a long-term-lower-high in the 248-253 range

C) Oil (WTI) to start to fade and fail at lower-long-term-highs of $69-71


Is as follows:


  1. Currency War (centrally planned FX devaluations to create growth and inflation) will see Japan, Europe, and the USA fail
  2. As each of the 3 majors sees growth and/or inflation slowing, they’ll take their turn with more of what has not worked
  3. In the end, the US has the best demographics of the 3, so they’ll have the best real growth of the 3 (and strongest currency)


The most important words in those 3 points are “they’ll take their turn.” In almost every macro strategist/economist piece there is either a complete disregard for that and/or a blind faith that real economic growth will be born out of these policies to begin with…


Look up the Wall Street Journal article this morning on US “Economist’s Expecting Recovery”:


  1. US economic growth to magically re-accelerate to +3.0% year-over-year in 2nd half of 2015
  2. US non-farm payrolls (NFP) to average 223,000 for the rest of 2015
  3. A “Strong Dollar” to weaken, which was the “headwind” to the US economy in Q1 2015


Meanwhile, the Hedgeye Predictive Tracking Algorithm has US GDP growth at +1.8% year-over-year growth in 2H 2015 and we could easily see non-farm payrolls at half of that expectation, in our most bullish case.


If I rattled off the Japanese and European “economist” expectations, the only ones that are in the area code of close are Japan’s. But that’s only because they have been forced to predict that none of this “growth” policy has worked for 20 years!


I realize this is the longest Early Look of the year. My apologies for that. If you’d like to ceaselessly stare at the S&P Futures, please refer to our risk ranges. Buy at the low-end (sell at the high-end) of the range, but please pay attention to TRENDs and TAILs too.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 1.95-2.31%

SPX 2098-2129
Nikkei 19199-20024
VIX 12.11-15.67
EUR/USD 1.10-1.14
YEN 118.77-120.58
Oil (WTI) 55.67-61.60


Best of luck out there today and enjoy your weekend,



Keith R. McCullough
Chief Executive Officer


Ceaseless Attention - z 05.15.15 chart

May 15, 2015

May 15, 2015 - Slide1



May 15, 2015 - Slide2

May 15, 2015 - Slide3

May 15, 2015 - Slide4

May 15, 2015 - Slide5

May 15, 2015 - Slide6



May 15, 2015 - Slide7

May 15, 2015 - Slide8

May 15, 2015 - Slide9

May 15, 2015 - Slide10




Takeaway: Mass promotional pressures are intensifying on the Peninsula. Chairman David Chow thinks Galaxy/MSC will each get 150 additional tables.


  • Negatively impacted across all 3 segments: VIP, premium mass and mass
    • No indication on when they will improve. Maybe no improvement until end of 2016.
  • New supply will add pressure on margins.
  • Junkets at Landmark are well capitalized
  • Will continue to expand self-run business at New Legend
  • Mass market:  more competition in rebates on the Peninsula
  • Do not expect to have any labor issues with construction of new projects
  • Harbourview hotel: 389 rooms (59 suites)
    • Only 50% rooms open in 1Q. Now all rooms open.
    • 80% occupancy in weekends/holidays - all rooms at non-comp
    • F&B trending nicely
  • Legend Palace Hotel: Waiting for construction license...expect hotel to be completed 2Q 2016
  • Legendale Hotel: 500 rooms, expect to be completed by end of 2017
  • Increased marketing/promotional costs for New Legend/Babylon which hurt margins in 1Q 2015.
  • Expect more business to come at Babylon (moved 20 VIP tables there but not in play yet as they need to hire people)
  • Want to grow direct VIP business


Q & A

  • David Chow:  300 table quota for 2015.  CoD and Galaxy Phase II may get 150 tables each.  Macau Legend asking for some tables too. Macau government want visitor diversification, less reliance on China. 
    • Cap on Mainland tourists? China government do not want to control people or markets. China govt will give more money to SMEs and the stock market. 
  • New revenues in 1Q:  HK$29m contribution from New Legend, HK$14m contribution from Harbourview hotel
  • One junket closure (worked exclusively at Macau Legend) (150 staff moved to Babylon): negative impact of HK$10m in 1Q. One-off expense in Harbourview hotel opening in 1Q.
  • Expect more tables will be available for the Babylon casino
  • Revisiting corporate costs in the business. Tightening their costs.
  • No change in capex targets for the hotel projects

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 78.67%