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RTA Live: May 20, 2015

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



Please visit http://app.hedgeye.com/feed_items/44102 for more information.


U.S. Dollar, Oil and the German DAX

Client Talking Points


The 1-day drop in the EUR/USD on the European central plan to “front-load” QE shows little to no follow through this morning, and the European Equity market doesn’t appreciate that. The USD Index has plenty of resistance at around 96 (that’s also the low-of our EUR/USD 1.10-1.14 immediate-term risk range).


We made an intraday call to buy Oil on the Up Dollar commodities pullback yesterday as WTI was signaling immediate-term TRADE oversold. WTI experienced a +1.5% bounce this morning to $58.83 and has no resistance to $61.37. Your catalyst on Down Dollar, Up Oil is the May 29th U.S. GDP report, then the June 5th jobs report (Fed meeting June 17th should be dovish too). 


The German DAX doesn’t show any follow through this morning as the German economic data continues to be weak (yesterday was a ZEW miss/slowdown; this morning it’s a -1.5% year-over-year PPI which is somewhat deflationary); German stocks are on our buy list, but they don’t have to be forever; watching how they act very closely here.

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. This is a data heavy week for housing. NAHB Builder Confidence dropped for the 4th time in 5 months, dipping -2pts sequentially in May to an Index reading of 54.   Confidence currently sits +9 pts higher than May of last year and is basically right on the average reading of 55 observed over the last three expansionary periods.  Further, at  the current reading of 54, the index remains well above the Better-Worse Mendoza line of 50, signaling builders continue to view conditions favorably.


The counter-TREND moves in the USD and commodities have been extensive and now confirmed: 1) U.S. Dollar: Down another 1.20% week-over-week to complete its BULLISH to BEARISH TREND Reversal. The dollar is now BULLISH on a TAIL duration (three years or less) and BEARISH on a TREND duration (3-Months or more) 2) CRB Index: +2.0% week-over-week and +5.5% 1-Month Change. The CRB is now BULLISH on a TREND duration and BEARISH on a TAIL duration.

Three for the Road


VIDEO (2mins) 'There's No Inflation, But It Costs $127,000 to Go to Harvard for Two Years' https://app.hedgeye.com/insights/44189-mccullough-there-s-no-inflation-but-it-costs-127-000-to-go-to-harv… via @hedgeye



The counter-TREND moves in the USD and commodities have been extensive and now confirmed: 1) U.S. Dollar: Down another 1.20% week-over-week to complete its BULLISH to BEARISH TREND Reversal. The dollar is now BULLISH on a TAIL duration (three years or less) and BEARISH on a TREND duration (3-Months or more) 2) CRB Index: +2.0% week-over-week and +5.5% 1-Month Change. The CRB is now BULLISH on a TREND duration and BEARISH on a TAIL duration.



2-to-3 are the early odds on American Pharoah winning the Belmont Stakes and capturing the first Triple Crown since Affirmed in 1978.

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LEISURE LETTER (5/20/2015)

Tickers:  NCLH, ALL.AX, MGM


  • May 19-21: G2E Asia at Venetian Macau
  • May 25: 11pm - Aristocrat 1H 2015 earnings: (; pw: 8770122)
  • June 4- CCL: special press announcement in NYC


  • Double whammy for NCLH 
    • $20m secondary by leading shareholders. The changes in share ownership is below:

LEISURE LETTER (5/20/2015) - NCLH1 

    • Norwegian Dawn had a temporary malfunction of its steering system at 5pm last night, causing the ship to sail slightly off course as the ship was departing Bermuda, resulting in the vessel making contact with the sea bed. All guests and crew are safe and there were absolutely no injuries.

Takeaway: The secondary is larger than the last one ($12.5m) and more will come. Norwegian has to play damage control with the Dawn incident.


Bloomberry- The ongoing slump in GGR in Macau is not good news for other Asian gaming jurisdictions, says Tom Arasi, president and COO of Bloomberry Resorts Corp. “It is a general downtrend… [People should] try to assess it with all the major markets throughout Asia Pacific and see if overall [regional GGR] is growing. I suspect not.” He acknowledged however that the Philippines still has a “public relations problem” with Chinese VIPs when it comes to safety and infrastructure perceptions.


The casino executive added that the Solaire property currently has an “amazing 50:50 balance” between high rollers and mass players, with the majority of VIP play coming from overseas gamblers.


Solaire – which first opened in March 2013 – had signed 84 junket operators, of whom 35 were active in the first quarter of 2015. Mass gaming continued to achieve what the firm called “sustainable growth” registering a 17% increase from the prior-year period.  But the firm reported an 100% increase during the reporting period in allowance for “doubtful accounts”, mostly linked to casino operations.


Takeaway: Cautious commentary from Solaire's boss although is property is on a nice trajectory


MGM - William Scott, who has served as executive vice president of corporate strategy and special counsel at MGM Resorts since July 2010 described any notion of selling down or selling off its 51% stake in Macau casino operator MGM China Holdings Ltd as “a very bad idea”. "MGM [Resorts] would like to increase its stake in MGM Macau [MGM China]. We’d like to make broader investments in MGM Macau," he said.



Aristocrat - Aristocrat is “heavily involved” in several of the upcoming casino openings and floor expansions taking place across the region, said managing director for Asia Pacific at Aristocrat Leisure Ltd, Vincent Kelly. 


When Galaxy Macau Phase 1 opened in May 2011, Aristocrat said it had achieved a floor share of about 70%, which it claimed at the time was “a record for any casino opening in Macau”. Mr Kelly did not provide floor share estimates for Aristocrat at Phase 2. ”


Aristocrat is now introducing to Asia Pacific its newest Hyperlink product, called ‘Fortune Tree’. The Chinese New Year-themed link launched with titles ‘5 Dragons Deluxe’, ‘Fortune King Deluxe’ and ’50 Dragons Deluxe’.


In addition, Aristocrat is deploying the first units of its latest cabinet, the Helix, in Asia. Mr Kelly said he expects the distinctive features of Helix – including the LED backlit full HD displays and rear surface ambient lighting – will play well with Chinese gamblers.



Thomas Cook Group -

    • The company notes that Summer 2015 holiday bookings across the group are encouraging, especially for Q4, which is offsetting some weakness in Q3.
    • The UK business and Airlines Germany continue to trade particularly well, our Northern European business has proven resilient in a difficult market, while our German tour operating business continues to experience tough trading conditions.
    • It expects further growth in FY15, consistent with expectations on a constant currency basis. 

Takeaway: Leisure travel remains choppy and mixed in European markets


GS - Moody National REIT Inc will buy 149 limited-service hotels from GS's Whitehall Street real estate unit. 




  • Acquisition Highlights:

    • 9-hotel portfolio consists of 8 select-service hotels and 1 full-service hotel with 1,251 total rooms for $224 million
    • Purchase price equates to an estimated forward 12-month cap rate of 7.5% and an estimated forward 12-month EBITDA multiple of 11.6x
    • Average price per key  ($179,000 per key)
    • Well-located and diversified portfolio proximate to stable demand generators
    • Relatively new assets with average age of 7 years
    • Remington Lodging to take over property management at closing


Extra Golden Week - Last week, the State Council of China designated September 3 as a national holiday to mark the ‘70th anniversary of the Chinese People’s Anti-Japanese War and the World Anti-Fascist War Victory Commemoration Day’. Thus, the Macau Government Tourist Office will assess whether this date and the weekend that follows could be another peak travel time for Mainland Chinese visitors visiting the MSAR, MGTO Director Maria Helena de Senna Fernandes said.


“For the Mainland, it [the September 3 holiday] will be arranged in a way that Chinese residents can have a vacation of three days in a row,” Ms. Fernandes told media on the sidelines of the Boao Asia Development Forum yesterday.
She explained that September 4, which is a Friday, is designated by the Mainland authorities as a holiday as its policy is to form a consecutive three-day holiday for citizens. “In this respect, we will assess whether this holiday will be a peak travel time [for Mainland visitors],” said the MGTO head, noting that the different government departments here will communicate on how to deal with visitor flow.


Takeaway: This extra holiday could boost visitation in September ahead of Golden Week in October.

Visitor expenditure survey 1Q 2015 - total spending (excluding gaming expenses) of visitors in the first quarter of 2015 amounted to MOP13.36 billion, down by 16.2% from MOP15.95 billion in the first quarter of 2014. Visitors spent mainly on Shopping (48.3%), Accommodation (25.6%) and Food & Beverage (18.8%).


Total spending of Mainland visitors reached MOP10.81 billion, of which spending of those from Guangdong Province (MOP3.59 billion) accounted for 33.2%. Per-capita spending of Mainland visitors was MOP2,152, down by 15.1% YoY.

Per-capita spending of Mainland visitors travelling under the Individual Visit Scheme (IVS) decreased by 14.3% YoY to MOP2,279; spending of Guangdong (MOP1,721) and Fujian visitors (MOP2,811) dropped by 3.4% and 15.9% respectively.


Analysed by place of residence, 27.2% of the visitors from Hong Kong came to Macao mainly for gaming activities, higher than that of other countries and regions.


LEISURE LETTER (5/20/2015) - m1

LEISURE LETTER (5/20/2015) - m2


 Takeaway: Not surprisingly, non-gaming spend was lower in Q1 2015


NJ Lottery-  The lottery is now expected to generate $930 million in revenue this fiscal year, down from the state’s original forecast of $1.04 billion. Treasurer Andrew Sidamon-Eristoff said he’s satisfied with Northstar’s performance under the contract but that doesn’t mean he’s happy about it.  “We’re not meeting our expectations, but I think it’s fair to note we are in the middle of a very significant national downturn in lotteries.” Democratic Budget Committee Chairman Paul Sarlo said, “The younger generations don’t play the lottery."

Takeaway: Not good news for SGMS's NorthStar JV but NJ has already been struggling. US lottery is having similar demographic issues as slots.


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.

What Didn't Work?

This note was originally published at 8am on May 06, 2015 for Hedgeye subscribers.

“I have not failed. I’ve just found 10,000 ways that don’t work.”

-Thomas Edison


If you analyze every line item of what I like and don’t like right now, there are plenty of things that aren’t working. Unless you’re raging Long Chinese stocks and Commodities vs. Short US/European Stocks (and Bonds), you probably have some issues too.


In the last week the US Dollar has completely dislocated from what was a consistent and correlated moved with US interest rates. What was the #StrongDollar Deflation (one of the biggest macro moves in a decade) has morphed into Down Dollar, Up Rates.


But is the US Dollar down ahead of another weak US jobs report? Or are Rates Up ahead of a good one? I can’t give you 10,000 different ways to ask me those two very basic questions – but in the last week, I’ve fielded hundreds of them!

What Didn't Work? - z d4


Back to the Global Macro Grind


Some people say that part of the value I provide is my unique perspective. Unlike many macro economists, strategists, and chartists, I am a former hedge fund guy who has made almost every mistake you can make, using live ammo.


Setting aside all of my human flaws, I think most of you (buy-siders) can empathize with getting things wrong. It’s only on the sell-side where the pace of improvement in Macro Strategy has been stalled by not accepting mistakes and learning from them.


As one of the bigger buy-siders (Ray Dalio) wrote in Principles: “At Bridgewater, we created a culture in which it is ok to make mistakes, but unacceptable not to identify, analyze, and learn from them.”


Roger that, Ray.


One of the mistakes I made recently was underestimating how our fundamental research call (#LateCycle Growth Slowing) would impact the USD/Oil trade.


From an intermediate-term TREND perspective, I thought Oil (WTI) would settle into a range of $36-57/barrel. This morning, on another Down Dollar move, Oil is up another +2.5% to $61.91.


You can apply creative writing skills from your no-buy-side-P&L-experience all you want, but from where I was born/raised in this business, this is commonly called being wrong (until you have the mental humility to change your mind).


So here’s my mind-changing this morning:


  1. Intermediate-term TREND price deck for Oil now = $42.06-$69.03
  2. Intermediate-term TREND risk range for the US Dollar Index = $90.29-100.03
  3. Intermediate-term TREND risk range for 10yr US Bond Yield = 1.73-2.39%


My mind changes every day actually. As price, volatility, and economic data changes, what do you do, Sir or Madame?


The first thing you’ll probably notice about my intermediate-term view is that:


A)     It’s more in line with the Global Macro reality of the last 6-12 months than the last 6-12 weeks

B)      And that the intermediate-term risk ranges are wacky wide


#WackyWide risk ranges are leading indicators for rising volatility. And rising volatility perpetuates mistakes.


To be clear, my mistake wasn’t being short Oil for this entire move up (we covered commodity shorts ahead of an easier Fed and #LateCycle Labor reports, for a trade). It wasn’t being long it at $100 either. It was in not being long it from $45 to $62.


My main mistake there was that I didn’t think Oil’s Volatility was going to compress almost as fast as it exploded to the upside. To put the volatility of volatility (in Oil) in context:


  1. From SEP 2014 to FEB 2015, Oil Volatility (OVX) went from 17 to 63 = +270%
  2. From FEB 2015 to now, OVX dropped from 63 to 36 = -42%


Every buy-sider who survived the 2007-2009 gets that unless you were on the right side of the decline, it was hard to run out and buy something with historical volatility of 20-30, never mind 63. This #behavorial reality leads me to more of a question (from here) than an answer as to whether or not I should buy Oil with upside to $69.03, when the downside is still $42.06.


Did the guys/gals who bought Oil and its cyclically related inflation expectations exposures (E&P MLP stocks, Energy Junk Bonds, Levered Long Oil Futures, etc.) down at $45 own it from $90 to $45? Or are we talking about a whole new investor class who nailed it both ways? While I’m not certain about anything in this profession, I’m pretty sure long-term Oil bulls averaged in.


Of all the mistakes I’ve made, averaging into losers is by far the most punishing. Especially when I’d have our funds in smaller cap exposures, doubling and tripling down on mistakes could make them all the more severe. Sure, I could tell my partners that I wasn’t wrong. I could say I hadn’t really failed (yet). But the #truth happens on the next decline, when you can’t get out.


When my Global Macro model says lower-for-longer on both US and Global Growth Rates… and every central planner on the planet is trying to “ease” the confusion implied in the volatility of the aforementioned risk ranges, what works for me isn’t adding to my mistakes; raising Cash does. And I’ll do that again this morning in the Hedgeye Asset Allocation Model.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 1.85-2.21%

SPX 2084-2106
RUT 1204-1230
VIX 13.03-14.79
USD 94.08-96.01
EUR/USD 1.06-1.13
Oil (WTI) 53.99-62.30


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


What Didn't Work? - z chart day

CHART OF THE DAY: Macro Calendar Catalysts (For Resumed Down #Dollar Correction)

Editor's Note: The chart and excerpt below are from today's Morning Newsletter written by Hedgeye CEO Keith McCullough. Click here for info on how you can subscribe and begin receiving a lot more insight than the little blurb below.


CHART OF THE DAY: Macro Calendar Catalysts (For Resumed Down #Dollar Correction) - Chart of the Day


As a reminder, here are your immediate-term Macro Calendar Catalysts for a resumed Down Dollar correction:


  1. May 29th – ugly headline Q1 2015 GDP report will keep political pressure on the Fed to push out the dots
  2. June 5th – watch out for the cycle on the labor front; especially if we get the 2nd bad jobs report in the last 3
  3. June 17th – Fed Day in America (FOMC meeting); sleep in until 9AM and just buy everything


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