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 8:21am ETClick here to learn more and subscribe. 

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LEISURE LETTER (05/22/2015)



  • May 25: 11pm - Aristocrat 1H 2015 earnings: (; pw: 8770122)
  • May 28: MGM Annual General Meeting: Proxy "Fight"
  • June 4- CCL: special press announcement in NYC

headline news

Macau visitation falls again - Visitor arrivals decreased by 3.4% YoY. The average length of stay of visitors decreased by 0.1 day YoY to 0.9 day. Visitors from Mainland China decreased by 6.4% YoY, with those traveling under the Individual Visit Scheme rising slightly by 0.5%. Visitors from Hong Kong and Taiwan increased by 3.0% and 11.0%, respectively. Guangdong visitors fell 3% while Beijing and Shanghai fell 10% and 13%, respectively. 


Takeaway: Fewer visitors, shrinking length of stay. And this is before the supply onslaught.  Base mass will continue to be pressured.


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Galaxy- Galaxy will get 150 new gaming tables for its HKD19.6-billion (US$2.5-billion) Galaxy Macau Phase 2 property, said Macau’s Secretary for Economy and Finance, Lionel Leong Vai Tac. Leong told reporters that the government’s decision was made based on the new non-gaming features to be offered by Galaxy Macau Phase 2 and sister property Broadway at Galaxy Macau, both opening on May 27 in the city’s Cotai district. The official added these features would help diversify the city’s tourism offering. 


Leong stated that the allocation of 150 new tables to the project complied with Macau’s table cap system. He added that Galaxy could move around its overall table inventory between properties better to meet the firm’s operational needs. Leong added that the Macau government had not received requests for more gaming tables from any of the other five casino operators in the territory.


Takeaway: Didn't MPEL submit a request for tables at Studio City? 


SJM - Following the resumption of construction works in the renovation of the former Casino Jai Alai earlier this month, the property opening date has now been postponed to after 1Q 2016 instead of this year, the chief executive of SJM Ambrose So Shu Fai said. “There has been a delay in the issuance of [the construction] permit to Jai Alai; but two to three weeks ago, we already received permission,” So explained.  “The property will open next year but by the first quarter it may not be ready. So the opening date will be later than that,” So added.


A total of some HK$1 billion (US$129 million) has to be invested in the Jai Alai revamped project, So said.  In the 2014 annual report filed on March 31, SJM said the firm had entered into capital commitments in connection with the revamp project – named ‘Jai Alai Palace’ - for a total value of about HK$657 million.


Takeaway: Higher capex and delayed opening for Jai Alai


SJM - CEO Ambrose So says that VIP business has been down 30 to 40% in the past few months and he doesn’t know if it has hit the bottom yet. So said that gaming tables in VIP rooms that are no longer in use would be transferred to the mass market to adjust to market changes. However, he pointed out that although there has been a slight growth in the mass market, the growth has “not been enough to fill the gap left by the VIP [market]”. According to So, just “one or two” VIP rooms have closed down at SJM so far.



MGM - MGM Resorts International filed an application with the Public Utilities Commission to purchase power without the state's dominant utility, NV Energy. MGM's application follows the filings this month of Wynn Resorts and Las Vegas Sands, highlighting an attempt at mass departure by the state's influential companies and sparking a debate about consumer choice and protecting ratepayers from higher power bills. Caesars is expected to submit an application in the coming days.  


Takeaway: Strip operators trying to save money on utilities. 


Paradise - is aiming to sell about 1,000 more live multi-game (LMG) machines in Macau this year, while deploying 700 of such machines in the US market, the company's chairman, Jay Chun said.

The company currently has over 3,500 live multi-game machines installed in 16 casinos in Macau. Chun said that Galaxy Macau Phase II, opening in less than a week, is also one of the clients that his firm is targeting to sell up to 1,000 LMGs.



BYD-  issued its $750 million, 6.875 percent senior notes due 2023. Proceeds will be used to repay its 9.125 percent senior notes due 2018.

Takeaway: The transaction allows BYD to lock in a lower borrowing rate and have more flexibility on their balance sheet.


SGMS- renewed its contract for its instant games and cooperative services program for four more years with De Lotto, the national lottery of the Netherlands.


H - invested in onefinestay, a closely held company that enables travelers to rent upscale private homes, the rare instance of a major hotel operator aligning with the burgeoning home-rental industry. Onefinestay matches homeowners looking to rent their residences in London, New York, Los Angeles and Paris with travelers. It manages a portfolio of more than 2,500 homes with a combined value of more than $5 billion, said the company. It is unclear how much Hyatt invested in onefinestay, but a person familiar with the matter said it was part of a nearly $40 million round of funding that was completed at the end of last year.

Takeaway: Hyatt is taking the right step in investing in the home-rental business. Despite mired in legal challenges, home rental companies, highlighted by AirBnB and Homeaway, is a real threat to the hotel industry.


RCL - Allure of the Seas emerged from its 18-day drydock at Navantia with 10 new suites, a revamped Izumi Hibachi & Sushi restaurant, a Sabor Taqueria & Tequila Bar, a Coastal Kitchen and new boutiques.



SK Cruise- A South Korean government ministry is facing resistance from vested interests inside the country and a lukewarm response from another department in its bid to enable local citizens to gamble aboard cruise ships flying the national flag, reports Yonhap News Agency.


Critics say the proposal amounts in effect to backsliding on a near-nationwide ban on locals gambling. That policy applies specifically to land-based casinos. The ministry promoting the local casino cruise ships idea says there would be tough rules to protect citizens from harm and that South Korean citizens are already using foreign cruise ships for such activities.


According to Yonhap, Maritime Minister Yoo Ki-june, from the Ministry of Oceans and Fisheries, said locals using such South Korean cruise ships would only be allowed to gamble for five to six hours at most per day while the ships are sailing in international waters. The maximum betting amount for individuals would be below US$100 for a five-day trip, the report added.



Atlantic City - Millennials want to party, not gamble in Atlantic City. Customer surveys conducted for the alliance last fall showed that young singles strongly identify with the city’s nightlife, but they were worried the casino closings had robbed them of their entertainment hotspots. “The closed facilities were of concern,” the survey concluded. “Nightlife was a driver of their trips.”


Borgata Hotel Casino & Spa, known for its cutting-edge entertainment, is building a $15 million expansion that includes an outdoor concert venue opening in June and a new nightclub that will make its debut at year’s end.


Takeaway: Bad demographics plaguing US gaming nationwide



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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May 22, 2015

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Dollar Down, Rates Down, Commodities Up

Client Talking Points


UST 10YR Yield is straight back down to where it started 2015 (2.17%) after every Bond Bear cried wolf again on the moving monkey “breakout” in bond yields – this has been going on for 17 months now and it’s for one very basic reason = Wall Street’s growth expectations remain too high, especially on #LateCycle factors like employment, wages, and capex.


If you want to find the love we had for Gold in 2010-2011, you want to find Waldo on U.S. growth expectations pushing the Fed out to 2016 and beyond on “rate hikes” – Gold loves nothing more than the Big Mac Combo of Down Dollar, Down Rates – you have both this morning, and a nice +0.7% move for Gold with no resistance to $1240. 


If you’re as bearish on Global Growth as we are, you probably own a ton of Chinese Equity exposure – if you only buy stocks when the growth data gets really bad, China is the poster child for that. The Shanghai Composite Casino ramps another +2.8% overnight to +44.2% year-to-date, crushing Macau gaming revenues as margin brokers rock the timestamps.

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


Is the Government Lying To You? I Weigh In on The Macro Show… via @hedgeye




With freedom, books, flowers, and the moon, who could not be happy?

Oscar Wilde


The returns of the S&P 500 from peak cycle (April 15th, 2000) to the 2002 cycle low was -43% (moving from 1,356.56 to 776.76).

Dazed and Confused

This note was originally published at 8am on May 08, 2015 for Hedgeye subscribers.

"It is better to be a lion for a day than a sheep all your life."

- Elizabeth Kenny


Is it? In financial market terms that is.


While Nurse Kenny’s boldness served her well in her treatment of polio among other musculoskeletal illnesses (her controversial methods are credited with being the foundation for modern physical therapy), I’m not so sure she would’ve been able to manage global macro risks during confusing times like these with that attitude.


For example, what if you took on orange jumpsuit risk and got the look-see on today’s jobs numbers? Would you know how to appropriately position for it? Would you be a lion and bet big on red or black or would you be a sheep?


To be crystal clear, we don’t have any edge in accurately forecasting the rate of change in nonfarm payrolls. Between the seven analysts on our macro and financials teams, we have just shy of a cumulative 100 years of experience analyzing markets and economies in both buy-side and sell-side roles and not one of us has been able to build a model that consistently and accurately forecasts said number – or the rate of change in wages for that matter. The standard error on every model we’ve built is too high to rely on such estimates so we don’t bother to incorporate them into our views.


I guess we are the sheep.


Back to the Global Macro Grind


There is a reason our cash position in our model asset allocation is as high as it’s been since mid-December; we are dazed and confused and require the shepherding of Mr. Market. Like God, he doesn’t speak to you directly – or out loud for that matter. Fortuitously, we employ a number of rigorous quantitative methods to extract such guidance from the marketplace (like TACRM for example).


Our intermediate-term views of lower-for-longer and deflation has been wrong for several weeks now and we have no problem jettisoning such views if Mr. Market tells us to. In this regard, he hasn’t given us the signal(s) just yet, but he’s definitely thinking out loud enough for us to lack a high degree of conviction in those views.


One thing we do have a high degree of conviction on is our ability to forecast the rate of change in both growth and inflation. We are also pretty good at figuring out how trends in these omnipotent macro factors front-run changes in monetary policy.


On that front, inflation is likely to accelerate in 2H15 and the risk to that forecast is actually to the upside as far as timing is concerned. Our inflation tracker had forecasted a bottom in YoY CPI in June as of ~6 weeks ago, but we now have the disinflationary impact peaking in April (chart #1 and chart #2). You’ll note on our GIP model (chart) that the 2nd derivative delta on inflation (x-axis) is very small in 2Q. We’re still disinflating, but not by much from here.


As previously mentioned, the base effects for CPI get really easy in the 2nd half of the year (chart). Will the Fed use this as justification for “having confidence that inflation will return to their target over a reasonable timeframe” and set the stage for hikes in 1H16? Maybe. By then, however, real GDP growth will have likely slowed dramatically (chart).


Broadening our horizon, inflation is still slowing on a trending basis across the world’s key developed economies. Across many of the EM economies, however, it is accelerating due to annualized currency debasement (chart). From a forecast perspective, global inflation is in the same boat as the U.S. (chart).


The strong inflows into TIPs of late appear somewhat prescient in the context of those forecasts. Specifically, investors have piled into TIPS at the fastest pace in three years, with $3.6B of inflows into mutual funds and ETFs that track this market. This follows two consecutive years of outflows.


Can rates work when inflation is accelerating? Our backtest data shows that the long bond usually works in #Quad3, but certainly not as much as it does in #Quad4 and arguably not when the Fed is setting the table for rate hikes (chart #1 and chart #2). We are simply making the bet that those rate hikes are not coming; in fact, the narrative could be one of preparing markets for QE4 by the time we get the 4Q15 GDP report at the end of January 2016. We believe spread compression to be a high probability outcome from here (chart).


Since this is probably the only strategy note you’ll read this morning that doesn’t focus on the jobs report, we’ll leave you with another piece of seemingly-random-but-useful analysis. The key takeaway from the Chart of the Day below is that over the next 2-3 months, the preponderance of high-frequency growth data is likely to look optically better relative to consensus expectations from here. It literally can’t get much worse as far as the surprise factor is concerned and we’re quite sure expectations for a broad swath of indictors were lowered after that soft 1Q GDP print. Also, 2Q GDP will accelerate on a headline (i.e. QoQ SAAR) basis.


We believe rates have likely priced in these dynamics and see no reason for bond yields to chase them any higher.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 1.87-2.29%

SPX 2071-2099
VIX 13.63-15.84
USD 93.61-96.53
Oil (WTI) 54.22-61.93

Gold 1170-1214 


Best of luck out there,




Darius Dale

Senior Macro Analyst


Dazed and Confused - Chart of the Day

investing ideas

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