Cartoon of the Day: Consensus

Cartoon of the Day: Consensus - consensus cartoon 07.29.2015

Hedgeye CEO Keith McCullough in today's Early Look:


For those of you who have been following us since we called the US economic cycle top in late 2007, you know that there’s frequently an opposite faction to our most important Global Macro Themes – it’s called Wall Street consensus.


Not that we keep score or anything, but if you go back to what we thought were 3 of the most important (already in motion) Global Macro Risks 1-year ago today, they were: #Inflation Slowing, Rates Falling, and Cross Asset-Class Volatility bottoming.


All of those calls were based on forward looking indicators born out of a repeatable research and risk management #process. Today, the biggest disconnect between our indicators and consensus is #GrowthSlowing in the 2nd half of 2015 (in both the US and Europe)...


PHS | Dog Days

Takeaway: PHS cooled off in June, but only modestly. Whereas 1Q & 2Q could be fairly characterized as "Great", 3Q data thus far remains merely "Good".

Our Hedgeye Housing Compendium table (below) aspires to present the state of the housing market in a visually-friendly format that takes about 30 seconds to consume.


PHS | Dog Days - Compendium 072915


Today's Focus: June Pending Home Sales & MBA Mortgage Applications

It’s 98O & humid in CT and the dog days of late-July and the months of normal seasonal underperformance for the housing complex are upon us.  With purchase applications flat for two consecutive weeks, Pending Sales retreating modestly and rates meandering in breakout-breakdown limbo, the data too is panting to maintain its 1H pace of improvement.


Last week was in interesting one for housing.  June Existing Home sales expectedly re-coupled with the multi-month strength observed in Pending Sales to make a new post-crisis high while New Home Sales for June were a big miss.  In contextualizing that divergence, we posited that the key point to remember is that there’s a timing mismatch between the two series.  EHS reflects closings, so June EHS was actually reflecting contract signings from April/May, whereas NHS was reflecting contract signings in June. 


Thus, today’s PHS print for June – which represents June contract activity and the apples-to-apples compare for the latest NHS print – would be the arbiter of Trend, particularly with the Existing Market currently representing over 90% of total transaction activity.    


Pending Sales in June retreated from the 9-year highs recorded in May, dropping -1.8% sequentially (the largest drop in 18-months) and declining for the first-time in 6 months.  On a year-over-year basis, growth decelerated -200 bps sequentially to +8.2% YoY.  Notably, June represented the finale in positive comp dynamics, with base effects putting progressive pressure on reported growth through the balance of the year.   PHS weakness in June also augurs for sequential softness in EHS for July set for release on 8/20.


Short-term Considerations: A modest retreat off of decade high levels of activity is still “Good” on an absolute basis but the transition from Great to Good has been the defining characteristic of the 3Q data to date.  Indeed, with Purchase Applications flat for a second week and tracking -1.1% QoQ in 3Q, the large-scale reversal in housing fundamentals and subsequent re-inflation of investor optimism around housing we’ve seen over the last 2-3 qtrs is now in its twilight. 


Medium/Longer Term Bottom Line: This isn't to say that Housing's age of outperformance has ended. Our view remains that we are in a secular recovery and the complex will again show solid absolute upside/outperformance in the seasonally strong 4Q15/1Q16 period, especially with HPI re-acceleration and heading into an election year.



PHS | Dog Days - PHS vs EHS


PHS | Dog Days - PHS LT


PHS | Dog Days - PHS YoY  TTM


PHS | Dog Days - Purchase YoY Regional


PHS | Dog Days - PHS Comps


PHS | Dog Days - Purchase Index   YoY Qtrly


PHS | Dog Days - Purchase YoY


PHS | Dog Days - Purchase 2013v14v15


PHS | Dog Days - Purchase LT


PHS | Dog Days - 30Y FRM 




About Pending Home Sales:

The Pending Home Sales Index is a monthly data release from the National Association of Realtors (NAR) and is considered a leading indicator for housing activity in the US. It is a leading indicator for Existing Home Sales, not New Home Sales. A pending home sale reflects the signing of a contract, but not the closing of the transaction, which occurs 1-2 months later. The NAR uses data from the MLS and large brokers to calculate the Pending Home Sales index. An index value of 100 corresponds to the average level of activity during 2001.



The NAR Pending Home Sales index is released between the 25th and the 31st of each month and covers data from the prior month.


About MBA Mortgage Applications:

The Mortgage Bankers’ Association’s mortgage applications index covers more than 75% of mortgage applications originated through retail and consumer direct channels. It does not include loans delivered through wholesale broker and correspondent channels. The MBA mortgage purchase applications index is considered a leading indicator of single-family home sales and construction. Moreover, it is the only housing index that is released on a weekly basis. 



The MBA Purchase Apps index is released every Wednesday morning at 7 am EST.



Joshua Steiner, CFA


Christian B. Drake

Is Record Year for M&A Activity a Bad Market Omen?


On today’s edition of The Macro Show, Senior Macro Analyst Darius Dale walks through year-to-date M&A activity. The 2015 numbers are already outpacing the two highest years on record: 2007 and 2000. Caution ahead?

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McCullough: The Biggest of Motherload Risk

Takeaway: We stuck with the growth and inflation call and we didn’t back off.

Editor’s Note: The commentary below comes from remarks delivered on The Macro Show this past Monday by Hedgeye CEO Keith McCullough. Click here to learn more about how you can subscribe to The Macro Show.

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McCullough: The Biggest of Motherload Risk  - Deflation cartoon 02.24.2015


Don’t forget that only a month or so ago, people were talking about 2.75% on the 10-year bond yield in the US and saying the Fed was going to go ahead and raise rates just because “they should.”


Not so much.


We’re down to 2.25% this morning. And falling. Last week was a fantastic week to be long what we call Quad 4 deflation. Don’t forget that in the Quad 4 deflation, you can get rid of all the things that I outlined in the Early Look this morning—whether you’re long energy stocks, basis material stocks, industrial stocks… Industrials! God, down -6.5% YTD. The almighty Dow naval gazer, Dow Jones, down on the year. That’s a strange bedfellow to a bull market if you ask me.


McCullough: The Biggest of Motherload Risk  - Z 07.27.15 chart


If you look at what worked last week, it was actually utilities. It was the bond market positioning on the long end of the curve. REITS were okay on a relative basis.


So again, this is Quad 4. Classic Quad 4 behavior of markets pricing in deflation. It remains the biggest of mother-load risk out there.


Look at the 10-year bond yields, it’s not just in the US:


• Swiss Bond yields are all the way down to -9 BPS this morning – that is implicitly and explicitly imputing deflation.

• German Bund yields down sub-70 at .69.


These are very big moves in the bond market.


And so I ask all my friends that I had to answer to just a couple months ago:


Where are you now?

Come on out here!

Let’s have a debate!


We were standing on the front line. We didn’t go away. We stuck with the growth and inflation call and we didn’t back off. We were wrong for a couple months, but we did not back off no, no, no!


So here I am… Come on out, come on out. Buy side or sell side. I am ready for debate. 


Is growth and inflation slowing or accelerating? You know the answer to that question. That’s why you have an asset allocation that’s over indexed to the best way to express that:  long dated Treasury maturities.

RTA Live: July 29, 2015

Below is the replay for today's edition of RTA Live.






July 28 8:30am: WYN 2Q CC ; PW: WYNDHAM

July 29 10:00am: HLT 2Q CC ; PW: 74328196

July 30 9:00am: HST 2Q CC

July 30 10:00am: MAR 2Q CC ; PW: 66506287

July 30 1:00pm: HOT 2Q CC ; PW: 69941686

July 30 8:30am: STAY 2Q CC (1877)

July 31 10:00am: RCL 2Q CC 

August 1

  • Wild Rose Jefferson opens
  • St Regis Macau opens

August 3: 8:00pm: CTRIP 2Q CC ; PW: 40828276

August 4: 11:00am: MGM 2Q CC ; PW: 0575269

August 4: 10:00am: NCLH 2Q CC Webcast Link Here

August 4: 5:00pm: AWAY 2Q CC

August 6: 8:30am: MPEL 2Q CC ; PW: MPEL

August 6: 8:30-1pm: RCL INVESTOR DAY (NYSE)


IHG/HOT - via Twitter and other news outlets, merger talks between IHG and HOT continue. 


UBER - In London, Uber faces legal action over cab drivers' rights.  The GMB union (a British Trade Union) will challenge the company's claim that its workers are partners rather than employees. 

  • The union says Uber is breaching its duty on pay, holidays, and health and safety.  

  • The firm says making drivers employees would mean losing their flexibility, which makes the job appealing.

  • The GMB's Steve Garelick said: "Operators like Uber must understand that they have an ethical and social policy that matches society's expectations of fair and honest treatment."

  • In May, Transport for London reported the number of private hire vehicle licences had risen from 52,000 to 77,000 over the previous 12 months, and most of that increase down to new Uber drivers.


Takeaway: Not the first time UBER has encountered regulatory/union driven headwinds, but London is a crucial market for them.


Macau Government Spending - Macau’s Chief Executive, Fernando Chui Sai On, has stressed that the city’s public finances “remain sound” despite the ongoing slump in casino GGR.  Mr Chui however confirmed that if Macau’s GGR tally for July comes in at around MOP18 billion ($2.25 billion), his government would introduce austerity measures to control spending, according to an official statement on Tuesday.  



Takeaway: We do not anticipate the government to use austerity measures.  


Macau Migrant Labor Force - Macau had 180,523 migrant workers at the end of last month, 16.2 per cent more than a year earlier, official data indicate.  The construction industry employed 48,692 of them, hotels and restaurants employed 45,680 and 22,555 were domestic servants.


Takeaway: A more detailed view of migrant labor in Macau versus yesterday's commentary. Construction hiring is good news for the casino operators. 


Nevada Gaming - Steep decline across the board for Nevada GGR. 

  • NV GGR (8.37%) YoY
  • Las Vegas Strip GGR (16.31%) YoY
  • Downtown Las Vegas GGR +2.25%
  • Boulder Strip GGR +6.28%
  • Balance of County GGR (1.15%)
  •  Breakdown of major segments on the Las Vegas Strip
    • Blackjack +0.27% YoY
    • Baccarat (57.00%) YoY
    • Total games (27.84%) YoY


Las Vegas Visitation - In June, there were 3.55 million visitors, +2.40% YoY.

  • Hotel Room Inventory - 149,071 rooms - (0.2%) YoY
  • Hotel Occupancy - 93% - +0.4% YoY   
  • ADR - $114.34 - (0.7%) YoY
  • RevPAR - 

Takeaway: Slots and Baccarat were particularly weak on the Strip. Combined with disappointing RevPAR we ask, where is the recovery? 


Pennsylvania Lottery - The Pennsylvania Lottery achieved a new sales record of $3.82 billion for the 2014-15 fiscal year and again generated more than $1.06 billion in net revenue.  Lottery sales in fiscal year 2014-15 surpassed the prior year's all-time sales record by $20.1 million, or 0.53%.  Instant games sales for the fiscal year totaled $2.59 billion, which was $146.7 million, or 6%, higher than the previous year. Instant games accounted 67.84 percent of fiscal year 2014-15 sales, up from 64.34% of total sales in the previous year.   


Takeaway: Lotteries remain white hot. 


Hedgeye Macro Team is incrementally bearish on U.S. consumption growth, based on the consumer's continued efforts to deleverage their household balance sheet combined with the peaking of consumer confidence and stagnating labor productivity.   

Takeaway:  For now, US regional gaming slowed in June but North American cruise pricing still doing well.