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Keith's Macro Notebook 5/18: USD | Gold | Europe


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

Dollar Getting Smoked

The U.S. Dollar was smoked on that bad Retail Sales report last Wednesday. It proceeded to close the week on its lows (down -1.8% week over week and -5.3% in the last month).


We’re staying with the counter-TREND call (Down Dollar, Up Commodities) until we get through what should be a dovish June 17th FOMC meeting.


On a related note … Lower-for-longer on rates being priced in – Hilsenrath’s WSJ article reiterating the same this morning.


Dollar Getting Smoked - z 44 05.18.15 chart


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LEISURE LETTER (5/18/2015)

Tickers:  27.HK

headline news 

Macau government only approves 150 of the 400 casino tables requested by Galaxy. Galaxy will have to move tables from other casinos under the group’s umbrella to the new casino grounds of Galaxy Phase 2.


Takeaway: While there hasn't been an official announcement, this media source has been credible in the past.  150 is exactly in line with our expectations. 


Bid for BWIN - 

  • 888 Holdings has submitted a proposal regarding the acquisition of bwin.party, comprising of cash and 888 shares.
    • The proposed transaction will require the approval of 888 shareholders
    • 888 shareholders representing ~59% of 888's share capital have irrevocably committed, subject to customary conditions, to vote in favour of the proposed transaction
  • Earlier reports indicated that a merged 888-Bwin Party business could be worth over GBP 1 billion

  • Bwin Party has been on the sales block since last November 


Takeaway: A bidding war among 888, GVC, and Amaya


Viking - Newly launched Viking Ocean Cruises is the first cruise line in several years to not include noncommissionable fees (NCFs) as part of the cruise commission structure. The line made its official debut on May 17 with the naming of its first ship, the Viking Star, in Bergen, Norway.


From the start, Viking Chairman Torstein Hagen has made “no nickel and diming” one of the cornerstones of the new line. For passengers, that translates into benefits like unlimited free Internet access and complimentary wine and beer with lunch and dinner.


For agents, it means the line items that other cruise lines designate as “noncommissionable,” such as port charges and taxes, are included in the amount on which commissions are calculated. Viking is hoping that this will help distinguish it from other lines in the small-ship, upper-premium category. Several agents said that the policy is welcome, and that if their clients are otherwise qualified for Viking, they would recommend it as a good business move.


Takeaway: A move by Viking to lure agents as they enter the ocean cruising industry.


Macau hotel promotions - Galaxy is introducing hotel promotions to mark the new property openings, while Sands China offers discounts of up to 50%. 


Takeaway: Pressure on ADR


Macau hotel pipeline -  As of March 31, 2015, Macau saw 18 hotel projects under construction and 25 hotel projects undergoing government approval, which could provide about 25,600 new hotel rooms in total, the latest data released by the Bureau of Land, Public Works and Transport (DSSOPT) shows.


The January to March period saw seven fewer hotel projects under construction than the previous quarter. For the 18 projects under construction, most of the over 9,800 hotel room inventory is earmarked for Cotai: five hotel projects were being built in Cotai during the period, which could release over 7,500 rooms.


On the Macau Peninsula 10 hotel projects were being built in the first quarter that could potentially provide over 1,000 rooms; in Taipa, the official data stated that two hotel projects were being built in the period, which could put over another 1,000 rooms in the pipeline. The ongoing construction of a hotel project in Coloane could supply about 200 rooms.


Meanwhile, some 25 hotel projects are in the planning stage and are undergoing government approvals, which could release more than 15,700 rooms to the market, according to DSSOPT data.


While the number of operating hotel rooms by March is almost level that of the same period last year, the occupancy rate declined by 8% points to 79.3% in 1Q 2015 – a time when the number of hotel guests has also declined by 11.6% to about 2.3 million. The last time that the hotel occupancy rate here was below 80% was the first quarter of 2013.


A separate set of data provided by the Macau Hotel Association  shows the occupancy rate in the 5-star hotels was 82.72%, almost 9% points lower than the same period last year; the occupancy rate of 4-star hotels was 80.76%, representing an 8.5% points YoY drop.


Takeaway: Lots of hotel supply coming, not just on Cotai in the face of rapidly declining occupancy rates. 


Manila Bay Resorts - Tiger Resort, Leisure and Entertainment Inc – a firm controlled by Kazuo Okada that is developing the Manila Bay Resorts casino property in the Philippines  said via email to GGRAsia, "Given that we have submitted a request for extension of our provisional licence for the first quarter for 2017, we are actively targeting to open the property by 2016. Our Phase 1 spans across our hotel, casino, nightclub and the iconic fountain with a variety of…restaurants...”  “Tiger Resort is currently in review with Pagcor regarding extension of our project implementation plan. Having already committed approximately US$750 million into the project, with a further US$1 billion pending, and having completed more than 50 percent of the construction we believe we are in compliance with the terms of the provisional licence," the company added.


But Tiger Resort has not yet announced a local real estate partner for the scheme. Local media have reported that the need for a local development partner relates to a requirement under the country’s constitution and public land laws that only Filipinos, or entities owned at least 60% by Filipino citizens, are allowed to own land. That restricts Mr Okada and his majority-owned companies to just 40% ownership of the land on which the resort is located.





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.

Early Look

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Another bad data point – we’d really like to bring good news, a positive pivot, a reason for hope, a catalyst on the horizon, but not today. Following a stronger sequential week due to the May holidays, table revenues are back to bad, and down 40% YoY. Our forecast for the full month of gaming revenues is not quite as bad, owing to easier weekly upcoming comps, but nobody should rejoice over a down 35-38% month. Our concern remains with the base mass where we see the biggest negative delta from Street expectations. Indeed, visitation and floor activity looks weak in May as well.



Please see our detailed note: 



Client Talking Points


The U.S. Dollar was smoked on that bad Retail Sales report (last Wednesday) and proceeded to close the week on its lows (-1.8% week-over-week and -5.3% in the last month). We are staying with the counter-TREND call (Down Dollar, Up Commodities) until we get through what should be a dovish June 17th FOMC meeting.


Gold had a big move last Wednesday on big volume showing some follow through here this morning (something Gold hasn’t been able to show for 8-10 months); $1228 last after a +3.1% week (+3.4% year-to-date vs SPX +3.0%); Down Dollar, Down Rates is what Gold wants most. 


Europe doesn’t like any of the aforementioned because that implies Up Euro. The EUR/USD is up another +2.3% last week, so the DAX was -2.2% on that, lagging all major equity markets; Euro fades -0.4% this morning, DAX rallies +0.9% - correlations continue to matter.

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

One way to invest in Lower-For-Longer, from an equity perspective, is being long U.S. REITS (VNQ). The reality is that we are in a #LateCycle slowdown and the jockeying around each incremental data point will continue to get more and more intense as the Fed’s only ammo for suspending the cycle that has unfolded many times over is to push out the dots on a rate hike. #LowerForLonger.


The ITB turned in modest positive absolute and relative performance in the latest week as the advance in interest rates ebbed and the high frequency mortgage purchase application data continued to reflect improving housing demand trends. Purchase activity was flat week-over-week but held at 23-month highs with demand growing +11.7% on a year-over-year basis.  As it stands, 2Q15 is currently running +14.5 QoQ, +13.7% YoY, and on track for its best quarter in two years. The Mortgage Bankers Association also released its Mortgage Credit Availability Index (MCAI) for April on Tuesday.  The MCAI made a new cycle high, increasing +0.5% month-over-month with the Government and Jumbo indices leading the gains.  


We are constructively dissatisfied with how last week went for Global Macro markets. Constructive because we think we made the right research pivot on Dollar Down, Commodities Up. Dissatisfied because devaluing the Dollar isn’t the answer for America’s stagnating economy. On Friday, the Down Dollar, Down Rates move looked a lot like 2011 all over again. Remember that? Markets did. Financials (XLF) -0.4% on the day vs. Utilities (XLU) +1.3%. It’s the Fed is going to stay Lower-For-Longer move that Hilsenrath confirmed in the WSJ this morning.

Three for the Road


In today's Early Look "Constructively Dissatisfied", I remind you what 2011 looked like - Down Dollar, Down Rates, Up Gold #Stagflation



Compound interest is the greatest mathematical discovery of all time.

-Albert Einstein


Over the course of six quarters (to establish its international business), HAIN bought 4 international businesses for a total of $600 million.

General Confusion

This note was originally published at 8am on May 04, 2015 for Hedgeye subscribers.

“To be a good General, you must know mathematics.”



If macro markets haven’t been confusing you as of late, give me a buzz. This 5’9 General needs to know the math that gave you clarity!


Napoleon went on to say that mathematics “serve to direct your thinking in a thousand circumstances” (Napoleon, pg 11). And in attempting to risk manage Global Macro markets, it’s tough to disagree with that.


The math simply gets tougher when correlations start to break-down. While they are not collapsing across durations (yet), correlations between the US Dollar, Rates, and Equities definitely don’t look like USD vs. Commodities do. That’s new. Welcome to a new week.


General Confusion - a.nap


Back to the Global Macro Grind


I’ll get into the point about correlations in a minute, but first let’s look at the FX move, in context:


  1. US Dollar Index dropped another -1.7% on the week, taking its 1mth correction to -2.9%, but still +5.6% YTD
  2. Euros (vs. USD) got squeezed +3.0% wk-over-wk, taking its 1mth rally to +4.1%, but still -7.4% YTD
  3. Canadian Dollar inched up another +0.2% on the week, taking its 1mth bounce to +3.8% (still -4.4% YTD)


In other words, whether it was priced in what became the most Consensus Macro FX position (short Burning Euros post the drop to $1.05 vs. USD in March) and/or a Commodity Currency like CAN/USD, that was one heck of a 1-month move.


The impact on macro markets, however, was not homogenous from a correlation perspective:


  1. CRB Commodities Index +1.7% last wk = +5.5% 1-month, but -0.9% YTD
  2. Oil (WTI) up another +3.5% last wk = +14.3% 1-month = +6.3% YTD




  1. Gold 0.0% last week = down -2.8% in the last month to -0.9% YTD
  2. UST 10yr Yield = +20 basis points last wk to 2.11% = down -6 basis points YTD


It’s pretty easy to argue that Gold doesn’t work when Bond Yields rise as market #history suggests that the absolute return of Gold then has to compete with higher yields. It’s harder to argue why USD and Bond Yields moved in the opposite direction.


So let’s go there and put the US 10yr Treasury Bond Yield move in the context of Global Yields:


  1. Germany’s 10yr Yield was +22 basis points (bps) on the wk to +0.36%
  2. Netherland’s 10yr Yield was +22bps wk-over-wk to +0.52%
  3. Austria’s 10yr Yield = +23bps wk-over-wk to +0.50%
  4. Belgium’s 10yr Yield = +22bps wk-over-wk to +0.65%
  5. Canada’s 10yr Yield = +22bps wk-over-wk to 1.66%
  6. Australia’s 10yr Yield = +15bps wk-over-wk to 2.68%


Not only was that a completely correlated move across bonds markets (un-correlated to the USD Down move), it was the biggest week-over-week percentage gain in Global Yields, ever.


And while I’m sure the next thing an absolutist will say is “but it’s from a low level”, that doesn’t matter when most of the institutionalized world runs money and chases returns, on a relative basis!


Yes, math majors who specialize in mean reversion history will also keenly note that “ever” is a long time. And for that reason alone I think it’s fair to say that US Bond Yields weren’t charging to lower-highs on bullish US economic data.


To the contrary, actually, the ISM report for the US that was reported on Friday was still plenty slow at 51.5 APR vs. the same in MAR (and it didn’t snow in April). Moreover, the employment component of the ISM slowed to sub 50 at 48.3.


That makes this week’s US jobs report all the more important as almost everyone I talk to thinks that the non-farm payrolls recover month-over-month (even though almost none of the Global Macro data did!).


Confused yet?


Just to add some Consensus Macro color to where the crowd is positioned coming into this week, here’s the most recent CFTC (non-Commercial) futures and options positioning:


  1. Russell 2000 net SHORT position at its lowest level of 2015 at -5,486 contracts (6mth avg -25,989)
  2. 10YR (US) Treasury net SHORT position at its lowest level of 2015 at -115,917 contracts (6mth avg -158,559)
  3. Crude Oil net LONG position tracking around its highest level of 2015 at +371,486 contracts (6mth avg +306,931)


This tells me (partly) why the Russell 2000 was the dog of the US major indices last week (many covered shorts high and are now too long small/mid caps lower) and what Bond Bears really think (i.e. they don’t think rates go up a lot from here).


As for people who are in the business of being bullish on Oil. There are many. There are also many, many, more Americans whose confidence and real-spending power slows alongside rising gas prices and a general confusion about markets vs. economic reality.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 1.86-2.12%

SPX 2087-2117
RUT 1217-1250
VIX 11.77-14.84
USD 94.25-96.71
EUR/USD 1.05-1.13
Oil (WTI) 54.62-60.15


Best of luck out there this week,



General Confusion - 05.04.15 chart

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