We will host a Macau conference call Today, September 8th at 11am ET to present more analysis on the August numbers, our projections and outlook, and where the Chinese may or may not be gambling. As always, we will entertain questions at the end of the presentation.


Watch the presentation live below.



LVS, WYNN, MGM, MPEL, 0027.HK, 1128.HK, 1928.HK, 2282.HK, 6883.HK, and 0880.HK.



  • Hedgeye company EBITDA estimates vs the Street for Q3, 2015, and 2016
  • Revised 2015/2016 monthly market projections
  • The promotional environment
  • "True" Mass trends
  • Research Topic: Where has the lost Macau business gone? 


Attendance on this call is limited. Ping  for more information

The Week Ahead

The Economic Data calendar for the week of the 7th of September through the 11th of September is full of critical releases and events.  Here is a snapshot of some of the headline numbers that we will be focused on.




The Week Ahead  - zx 09.04.15 Week Ahead

HEDGEYE Exchange Tracker | Volatility - Elevator Up...Stairs Down

Takeaway: Volume in all three categories remained elevated after last week's volatility blow-out

Weekly Activity Wrap Up

With volatility remaining elevated, exchange traded activity continued at an impressive pace this week. U.S. cash equity volume averaged 7.9 billion shares for the week, following last week's volume blow out. Growth in U.S. stock trading for the third quarter is now running at +29% Y/Y and +16% Q/Q. U.S. equity options activity averaged 17.0 million contracts this week. Year-over-year growth in U.S. options is tracking at +18%. U.S. futures activity continues to comp positively. U.S. futures activity hit 19.2 million contracts this week (the combination of CME Group and ICE Futures U.S. activity) and is now averaging 18.7 million for the quarter, a +6% year-over-year and quarter-over-quarter expansion. 


HEDGEYE Exchange Tracker | Volatility - Elevator Up...Stairs Down - 2XMon1


U.S. Cash Equity Detail

U.S. cash equity trading finished the week at 7.9 billion shares traded which is blending to a 7.3 billion daily average thus far for the 3rd quarter of 2015. This is +29% year-over-year growth for U.S. stock activity. The market share battle for volume is mixed. The New York Stock Exchange/ICE's share of third-quarter volume remains at 24%. NASDAQ's share also remained unchanged week over week at 19%, 100 bps lower than last year, a -4% decline.


HEDGEYE Exchange Tracker | Volatility - Elevator Up...Stairs Down - XMon2


HEDGEYE Exchange Tracker | Volatility - Elevator Up...Stairs Down - XMon3


U.S. Options Detail

U.S. options activity remains significantly higher, both quarter-over-quarter and year-over-year. 17.0 million contracts traded this week which is blending 3Q15 activity to 18.7 million contracts per day, up +24% quarter-over-quarter and +18% year-over-year. The market share battle amongst venues continues to be one of losses at both the NYSE/ICE and NASDAQ. NYSE has lost 400 basis points of share year-over-year settling at just 18% of options trading currently. NASDAQ has shed 300 basis points of share, good for a -15% loss from last year as ISE/Deutsche Boerse and BATS mop up volume and share.


HEDGEYE Exchange Tracker | Volatility - Elevator Up...Stairs Down - XMon4


HEDGEYE Exchange Tracker | Volatility - Elevator Up...Stairs Down - XMon5


U.S. Futures Detail

CME Group volume came in this week at 15.1 million contracts. That blends 3Q15 volume to a 14.5 million average level, a +8% year-over-year expansion. Additionally, CME open interest, the most important beacon of forward activity, continues in strong fashion. 103.8 million CME contracts are pending, good for +23% growth over the 84.1 million pending at the beginning of 2014, consistent with the prior week's +25%.


Activity levels on the futures side at ICE hit 4.2 million contracts this week, with 3Q15 blending to a 4.2 million daily average, a +2% year-over-year expansion. ICE open interest this week tallied 63.8 million contracts, a -8% contraction versus the 69.2 million contracts open at the beginning of 2014.

*Please note that in the last week ICE discontinued reporting of its single stock equity contract activity, stating it is not indicative of revenue. Therefore, the historical numbers we show are now revised to exclude that activity.


HEDGEYE Exchange Tracker | Volatility - Elevator Up...Stairs Down - XMon6


HEDGEYE Exchange Tracker | Volatility - Elevator Up...Stairs Down - XMon8


HEDGEYE Exchange Tracker | Volatility - Elevator Up...Stairs Down - 2XMon7


HEDGEYE Exchange Tracker | Volatility - Elevator Up...Stairs Down - 2XMon9


Monthly Historical View

Monthly activity levels give a broader perspective of exchange based trends. As volatility levels, measured by the VIX, MOVE, and FX Vol should rise to normal levels after the drastic compression this cycle, we expect all marketplaces to experience higher activity levels.


HEDGEYE Exchange Tracker | Volatility - Elevator Up...Stairs Down - XMon10


HEDGEYE Exchange Tracker | Volatility - Elevator Up...Stairs Down - XMon11


HEDGEYE Exchange Tracker | Volatility - Elevator Up...Stairs Down - XMon12


HEDGEYE Exchange Tracker | Volatility - Elevator Up...Stairs Down - XMon13


HEDGEYE Exchange Tracker | Volatility - Elevator Up...Stairs Down - XMon14


HEDGEYE Exchange Tracker | Volatility - Elevator Up...Stairs Down - XMon15


Sector Revenue Exposure

The exchange sector has broadly diversified its revenue exposure over 10 years as public entities with varying top line sensitivity to the enclosed trading volume data. The table below highlights how trading volumes will flow through the various operating models at NASDAQ, CME Group, ICE, and Virtu:


HEDGEYE Exchange Tracker | Volatility - Elevator Up...Stairs Down - XMon19 3




 We recently presented our investment thesis on the Exchanges. To summarize,

  • Long CME:  Financially oriented CME Group (CME) is enjoying a long awaited boom in activity, as trader counts and open interest in Treasuries, Eurodollars, and FX products are swelling. The decade long concentration on trading energy and commodities is over and with steeply shaped forward curves and more profitable opportunities, financial products are seeing rapid adoption. 
  • Short ICE: We see collateral damage from the ongoing rapid price decline in energy and commodity markets. As a result, these important products at ICE will be less active than the Street expects, as commercial hedging and speculative energy trading dries up.

We think CME has $5 per share in earnings power in the out year and the stock will revisit near $140. As outlined in our presentation deck and replay below, a CME long position can also be paired with a short ICE position, with favorable fundamental exposures on each side of the trade.


Separately, recent IPO Virtu (VIRT) is being valued incorrectly by the market. Our main qualm is that the company takes intraday prop risk, but has no tangible equity capital to cover any potential trading losses. Shares of VIRT are currently on our Best Ideas list as a short with a fair value in the mid-teens (30-40% downside).


Hedgeye Exchange Black Book Replay HERE

Hedgeye Exchanges Black Book Materials HERE


HEDGEYE Exchange Tracker | Volatility - Elevator Up...Stairs Down - XMon20


 Please let us know of any questions,


Jonathan Casteleyn, CFA, CMT 




 Joshua Steiner, CFA





Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.

What Your Morning Risk Management Process Isn’t Telling You

Watch this edition of The Macro Show and see what your missing!

On August 28th Hedgeye CEO Keith McCullough hit on his biggest concerns for the near term and discussed how the volatility component is critical when analyzing the moves in the market.


Subscribe to The Macro Show today for access to this and all other episodes. 


Subscribe to Hedgeye on YouTube for all of our free video content.


Investing Ideas Newsletter

Takeaway: Current Investing Ideas: ZBH, GLD, MCD, RH, XLU, LNKD, ZOES, FNGN, FL, PENN, GIS, EDV & TLT

Investing Ideas Newsletter      - Volatility cartoon 09.02.2015 normal


Below are our analysts’ updates on our thirteen current high conviction long and short investing ideas. Please note that we added the healthcare company Zimmer Biomet (ZBH) to the short side this week. In addition, we removed Virtu Financial (VIRT) from the short side and Hologic (HOLX) from the long side. We also feature CEO Keith McCullough’s updated levels for each below.  


Investing Ideas Newsletter      - z z levels

Trade :: Trend :: Tail Process - These are three durations over which we analyze investment ideas and themes. Hedgeye has created a process as a way of characterizing our investment ideas and their risk profiles, to fit the investing strategies and preferences of our subscribers.

  • "Trade" is a duration of 3 weeks or less
  • "Trend" is a duration of 3 months or more
  • "Tail" is a duration of 3 years or les



We added Zimmer Biomet to Investing Ideas on the short side Friday afternoon. Our Healthcare sector analyst team led by Tom Tobin will send subscribers a full stock report outlining our bear case this coming week, along with updated levels for ZBH. from Keith.


The report below was written by Financials Co-Sector Head Jonathan Casteleyn.

Shares of Financial Engines continue to bounce around in the volatile market on fears that the company’s underlying 401K managed account offering will lose substantial subscribers as investor flee equities. While historically market volatility has dislodged some money from the firm’s asset-under-management, by definition the firm’s portfolio are efficient optimized and will outperform any headline gains or losses in the broader financial markets.


FNGN’s engines are constantly rebalancing along the efficient frontier using modern portfolio theory and hence are diversified amongst equities, fixed income, and cash. While FNGN’s subscribers might panic temporarily on overall lower market returns, they shouldn’t, because their performance will be better than benchmark averages. Our research shows that FNGN portfolio’s pick up lower volatility than many equity markets which give us comfort that long term, there is still a solid value-added service provided by the company to its client base.


FNGN’s optimized portfolio’s have side-stepped the volatility of equity markets and put up better returns than most stocks only behind the returns and volatility of an all bond portfolio. This means FNGN subscribers have well diversified portfolios as a result of their professional managed services from the company:


Investing Ideas Newsletter      - z z cast



The update below was written by our Gaming, Lodging & Leisure team.


Following our recent visit to Plainridge and meetings with senior management, we reiterate our positive Penn National Gaming thesis.  Stability in regional markets provides good earnings visibility while expected strong contributions from Plainridge and Jamul next year should provide a nice 2 year growth story.


As we highlighted in a separate note this week, ("August Just a Blip"), regional gaming likely cooled off in August following a strong July.  While that could provide some consternation as the states begin releasing August gaming revenues later this week, the YoY slowdown is more related to quantitative factors rather than the health of the regional gaming customer.  September should quickly provide evidence of that.


Incidentally, Penn National in Pennsylvania just reported slot revs down 4% for August. Confirmation of a weaker August as we forecasted. 


Bottom Line: The bull thesis on PENN appears very much intact.


The update below was written by our Consumer Staples team.


General Mills announced on Thursday that they have signed a definitive agreement to sell the Green Giant and Le Sueur vegetable businesses to B&G Foods (BGS) for $765mm in cash.  This news is no surprise. It has been widely rumored for the last six months. As we laid out in our GIS Black Book, management still has work to do to reshape the portfolio for future growth. In addition to divesting underperforming non-core businesses, acquiring growth will be crucial to revitalizing the company.


Investing Ideas Newsletter      - z z gis


While the news was largely expected by the market, it was good to see this deal finally close. We are expecting GIS to actively shape their portfolio for the foreseeable future. On whether it will be an acquisition or a divestiture, we are hoping for both, as they need to shed non-core assets and acquire high growth ones.  


GIS stated that they expect the sale to be dilutive to FY2016 EPS by ~$0.05-0.07 per share, excluding transaction costs and a one-time gain on the sale.  General Mills will provide additional details about the impact of the transaction when it reports 1Q16 results on September 22nd. As expected the company plans to use the net proceeds for share repurchases and debt reduction following the Annie’s acquisition last year.


To view our analyst's original note on LinkedIn: CLICK HERE


After speaking with company management and reviewing the 10-Q, we believe the recent sell-off in the stock is overdone. Most of LinkedIn’s wounds have been self-inflicted (soft guidance), not fundamental.  We suspect that management realizes that it really messed up by "low-balling" guidance two quarters in row.  We don't think it will make the same mistake again on its next print. And, with the worst case scenario already baked into consensus estimates, we suspect the worst is now behind them. 


Fundamentally, we continue to see LNKD’s investment into its salesforce as a prudent move given an improving selling environment from macroeconomic trends.  It’s quite possible that LNKD could see an acceleration in revenue growth within its core Talent Solutions segment by year end, which we believe would dispel many of the recent concerns in the name.  


The update below was written by our Restaurants team.


Zoës Kitchen has officially entered the big leagues as the company and its stock price continue to grow exponentially. Despite the impressive financial performance, delivery, the stock has not been performing well recently due to reasons and market-related forces outside of the company’s control.


To be sure, the company remains on the Hedgeye Restaurants Best Ideas list as a long. In our eyes, ZOES represents the best growth story in the restaurants sector. We believe the present downturn in the stock represents a great buying opportunity for longer term investors. 


The "Growth Is Back" bulls didn’t like a trifecta of mediocre labor market data releases this week. The labor market peaks late cycle and the trend in key employment data suggest things are going from great to good (marginal changes matter):



The ADP employment report showed a sequential acceleration, printing +190K vs. +185K in July. But to be clear, this series peaked at over +200K additions in the first couple of months of 2015



Initial jobless claims bottomed about six weeks ago. The trend in that series is moving back to the all-important 300K level. Remember, peak improvement in initial claims occurs around 7 months ahead of the economic cycle peak and coincident with or slightly ahead of the equity market peak.  To be sure, Initial Jobless Claims have been the single most consistent, lead labor market indicator for the economic cycle.



While the headline NFP number was a bomb on Friday, printing +173K for Aug. vs. estimates for +215K, the trend is also turning. This series also peaked back in February on a YY rate-of-change basis


Don't forget Wednesday’s ISM-Manufacturing report. It was poor to say the least:

  • ISM Mfg. printed a -7% growth rate Y/Y for August (Yikes.)
  • Production/New Orders/Employment came in lower for August
  • The actual number was 51.1 which is obviously moving closer to the no growth 50-line
  • As you can see in the chart below ("doodling" is straight from the pen of Keith McCullough), the last five months of data has been awful from a rate of change perspective (see red circle)

Investing Ideas Newsletter      - z z ben


Why do we point to all of this growth-slowing data? Because it’s meaningful.

  • As we have mentioned repeatedly Central Banks take a reactionary policy response to the data. The market is becoming more efficient at getting in front of policy the longer we venture into this modern-day central policy experiment
  • When forward-looking growth expectations are taken down, the back end of the Treasury curve flattens (this is good for TLT and EDV)
  • In reaction to more dovish policy monetary policy measures, the market likes gold over dollars coming out of central policy events


The market sniffed out a shaky stock market this week and a slew of poor employment data:


Week-over-week performance:

  • S&P 500: -3.5%
  • U.S. Treasury 10-Year Yield: -8bps (TLT +0.34%)
  • Gold: -1.13%


On the small loss on the gold position, we had the catalyst out of Europe this week as the ECB pointed to lower forward-looking growth and inflation expectations. Mario Draghi also announced the expansion of the share limit on their QE program. The market took this as Euro bearish. The USD appreciated against the Euro, and Gold moved lower on Thursday.


We received a number of questions this week on why long-term Treasury positions haven’t gone up more with all of the current turmoil in equity markets. Our view is that growth continues to slow and our most important goal in this period of volatility is to advise people on how not to lose money. Our asset allocation remains one of cash, Treasuries, and a small gold position. Sure, it may be boring for now, but it’s better than being ruinous. Take a look at the less-than-stellar hedge fund returns in the month of August.


We're sticking with our game plan.


To view our original note on McDonald's: CLICK HERE


McDonald’s is on the Hedgeye Restaurants Best Ideas list as a long.


The franchisees voted YES on the proposal to launch All Day Breakfast nationwide at all 14,318 U.S. locations. The vote confirmed on Tuesday, September 1st by the franchisee leadership council. This is a very important, monumental move by CEO Steve Easterbrook. It will define his legacy as the CEO that changed McDonald's (and the rest of the industry) for many years to come.


In 2016, if MCD (with all day breakfast and an improved value message) can drive same-store sales up by 5%, the system will generate $1.9bn in incremental system-wide sales.  Needless to say, a healthy McDonald’s will make life difficult for a number of others in the QSR space.


As noted in our survey we released on July 27th, it is evident that All Day Breakfast (ADB) will be a game changer for the company. Breakfast is the single most requested item by McDonald’s customers. Listening to the customer is a tried and true way to succeed.


Investing Ideas Newsletter      - z z mcd



Menu changes are coming as part of this initiative. MCD will have to remove some items from the previous menu to make way for ADB. They have already announced the removal of certain sandwiches and snack wraps and the simplification of the drive thru menu, but expect more to come on a region by region basis.  The company has said that they will be offering at minimum the Egg McMuffin, Bacon, Egg & Cheese Biscuit, Sausage Burrito, Hotcakes, Hash Browns and Fruit ‘N Yogurt Parfait.



As part of this move, operators will need to purchase separate grills and toasters. The grills will sit on rolling carts which will carry utensils used just for eggs to ensure the raw eggs do not contact any other food. The required investment will range from $500 to $5,000 per restaurant, depending on what equipment franchisees already have.  We would not be surprised to hear that corporate is helping to support the franchisees making this investment. 



All Day Breakfast has the potential to be the “silver bullet” MCD will need to drive same-stores sales higher in 2016 and beyond.  This will undoubtedly drive incremental traffic, probably even from people that don’t normally go to McDonald’s. The momentum that they gain from this must be harnessed to turnaround customer perception. This is their time to shine and we are confident the system is ready to show off its bountiful improvements to bring back their lost customers and continue to serve their loyal ones.  ADB is coming sooner than we had thought, and we look forward to the November 10th analyst day in which we will assuredly be getting an early read on All Day Breakfast performance.



To view our analyst's original note on Restoration Hardware: CLICK HERE


Below is a look at our bullish outlook on Restoration Hardware across the three durations over which we analyze investment ideas and themes. 



The Sept 10 print marks one of the few times we’ll expect ‘only’ an in-line print from RH. The timing of new product launches (Modern/Teen) has been well-telegraphed by management for 2H, not 2Q. Nonetheless, we’ll still be looking at 25-30% EPS growth.



The catalyst calendar looks solid for RH. Immediately following the print, we’ll see the launch of RH Modern and RH Teen. Then we’ll see four successive Design Gallery openings in Chicago, Denver, Austin and Tampa. Square footage will subsequently accelerate from a mid-single digit level to over 30%.



We think RH will earn close to $11 per share in 3 years, which compares to the consensus at just over $6. The square footage component is well known, but we think people are missing…


  1. The productivity and market share that we’re likely to see from each new store
  2. How scalable this business model is without commensurate capital investment
  3. The leverage we’re likely to see as below-market real-estate deals being struck today begin to impact the P&L.


The update below was written by Retail analyst Alec Richards.


To own Foot Locker at this price, you need to believe that the company can: 

  1. Grow square footage (which is capital intensive and risky)
  2. Comp mid-single digits for multiple years (unlikely)
  3. Drive gross margin meaningfully higher (Nike won’t allow that, and FL’s .com business is not margin accretive)
  4. Meaningfully leverage SG&A (but its’ sub-20% SG&A ratio is already the lowest in retail)
  5. And/or, significantly boost asset turns (but capex is rising and management noted that inventory turns are ‘tantalizingly close’ to their goal).

This went from being an average company driving 20-30% EPS growth with less capital, to one that has to spend more just to maintain a 10% earnings growth rate. We think we’re right in between those two stages now, and the ownership characteristics are probably very different as we move from one to the other.


All in, if we’re wrong in our analysis, we think the upside is $75 (15x $5 in EPS). If we’re right, we think it can revisit $50-$55 (12-13x $4.00), at least 3 to 1 downside to upside.

Cartoon of the Day: Explosion Ahead?

Cartoon of the Day: Explosion Ahead? - Rate hike cartoon 09.04.2015

As Hedgeye CEO Keith McCullough wrote earlier this morning, "Fed, I dare you to hike into a #LateCycle slowdown. You'll blow this entire thing up."


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