Intuition vs. Insight

“Insight is the discovery of new patterns.”

-Gary Klein


Whereas “intuition is the use of patterns they’ve already learned.” That’s how Dr. Gary Klein differentiates intuition vs. insight in a fantastic new book I cracked open this weekend called Seeing What Others Don’t The Remarkable Ways We Gain Insight


In that excerpt in particular, Klein was analyzing the decision making #process of firefighters who “build up patterns that apply in making rapid decisions in emergencies.”


“Firefighters often changed their beliefs about a complex fire as they learned more details… surprises forced them to rethink what was going on and replace erroneous beliefs.” (pg 27) Is that how you risk manage non-linear market and economic risks? I do.


Intuition vs. Insight - z fire fire


Back to the Global Macro Grind


Maybe I learned about macro risk management from my Dad (firefighter for 38 years) – maybe I just had enough humility to learn it from Mr. Macro Market himself. Like in most things macro, I should never be sure.


While we won’t be sure until we move out further in time, with every US Jobs Report we’re becoming more sure that the peak in the latest of #LateCycle US economic indicators peaked when the cycle did.


As you can see in today’s Chart of The Day (with my doodles):


  1. The peak (year-over-year rate of change) in both non-farm and private payroll growth was in FEB 2015
  2. Non-farm (NFP) payrolls have slowed from 2.34% in FEB to a YTD low of 2.09% in AUG
  3. Private payroll growth has slowed from 2.71% in FEB to 2.37% in AUG


But, but – there are no buts. Until enough people believe that “it’s different this time,” the recent #history of the US Labor Cycle slowing is what it is. Alongside slowing Growth, Inflation, and Revenues/Earnings – it’s all part of the #LateCycle slowing, ex-“China.”


The good news about this is that some of it is being priced in. On Friday’s print, US stocks (SP500) dropped -1.5% and the UST 10yr Yield fell to 2.11%. Despite both “bouncing” (again) this morning, that is what it is now too.


On the pricing in of it all, here are some things to consider when contextualizing your next series of decisions:


  1. SP500 was down -3.4% last week, taking its 1-month drop to -8.2% and draw-down from the all-time high to -9.8%
  2. The US Dollar (Index) was up then down to end last week and has lost -1.7% of its value in the last month
  3. At 2.12%, the 10yr UST yield dropped 6 basis points (bps) last wk and is down -10 basis points in the last month
  4. Utilities (XLU) and Healthcare (XLV) stocks dropped, despite rates falling, -5.1% and -4.3% last wk, respectively
  5. US 5yr Break-Evens (inflation expectations) fell another -10bps last wk (-17bps in the last month) to 1.16%


In other words, that’s what it means when both GROWTH and INFLATION are starting to (not finished) price in the slowing. In classic #LateCycle form, as the data slows, the US Dollar’s gains have alongside falling interest rates.


Futures and Options positioning is becoming quite bearish on growth and inflation too. Here’s the update on CFTC non-commercial net LONG and SHORT positions:


  1. SP500 (Index + Emini) net SHORT contracts ramped -113,152 last wk (most bearish move all year) to -153,997
  2. EURO net SHORT position is at one of its least bearish positions in a year at -59,691 contracts
  3. YEN net SHORT position fell to its lowest of 2015 at -20,994 contracts


What you can see here is a relatively new pattern of big macro players putting on a collectively bearish bet on both US growth and the currency appreciation expectations that used to be built into a June “rate hike.”


Now that June has come and gone, the doves are starting to cry at the Federal Reserve about September. This morning’s @WSJ update has a Fed voting member who was relatively hawkish (San Francisco Fed Head, Williams) going dovish too.


From NY Fed Head, Bill Dudley, to the West Coast’s Williams what you can also see here is a new pattern of the Fed becoming concerned about a “falling stock market” (Williams’ words, not mine).


If the Fed just says “NO SEP HIKE”, will that clarity perpetuate less short-term volatility in both FICC (Fixed Income, Currencies, and Commodities) and Global Equities? I think it might.


And the only reason why I think that is because my front-runner (my risk range process) is finally signaling tighter ranges in not only rates this morning, but the EUR/USD pair and, to a relative degree, the SP500.


Is that a signal or noise? Intuition or insight? I’m not sure. I rarely get more sure until the market opens and I can risk manage the fire, in real-time.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 2.07-2.19%

VIX 22.07-36.13
EUR/USD 1.10-1.14


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Intuition vs. Insight - z la lal la 09.08.15 chart

Post Labor Day Mashup

Post Labor Day Mashup - CHART 1




8/28/15 ZOES | Entering the Big Leagues




Thursday, September 3

DIN | Announced strategic plan to consolidate operations at its Glendale, CA location, intended to improve organizational speed and effectiveness. They are expecting pre-tax charges of $3mm in FY15 and $10mm in FY16 (click here for article)

FOGO | Will open five new restaurants in the United States, this is all part of their effort to increase company-owned restaurant count by 10% per year. The new locations will be in Summerlin, NV, Woodlands, TX, San Francisco, CA, Naperville, IL and New Orleans, LA (click here for article)

BWLD | Opened first restaurant in Dubai (click here for article)


Wednesday, September 2

CMG | Lawsuit challenges Chipotle’s G.M.O. claims, claiming that the meat products come from animals which feed on G.M.O. corn and soy. Chipotle has said little except for that they intend to fight the suit (click here for article)


Tuesday, September 1

MCD | Announced all day breakfast will be nationally launched at all locations on October 6th (click here for Hedgeye note)

BOBE | The company along with its external advisors have decided that performing a sale-leaseback transaction of up to $200mm is the most appropriate path to enhancing shareholder value (click here for article)

SHAK | Announced the first Tokyo Shack will open this winter in Meiji-Jing Gaien park (click here for article)



Casual Dining and Quick Service stocks that we follow widely outperformed the XLY last week. The XLY was down -2.3%, top performers on a relative basis from casual dining were BOBE and RT posting an increase of +5.7% and +4.9%, respectively, while GMCR and ARCO led the quick service group this week up +10.2% and +5.1%, respectively.

Post Labor Day Mashup - CHART 2

Post Labor Day Mashup - CHART 3



From a quantitative perspective, the XLY looks bearish from a TRADE and TREND perspective, TRADE support is 71.09.

Post Labor Day Mashup - CHART 4



Post Labor Day Mashup - CHART 5

Post Labor Day Mashup - CHART 6

Post Labor Day Mashup - CHART 7



Post Labor Day Mashup - CHART 8

Post Labor Day Mashup - CHART 9

Post Labor Day Mashup - CHART 10



Restaurant performance index capital expenditures have been accelerating due an increase number of IPO’s and restaurant expansion across the country.

Post Labor Day Mashup - CHART 11


Keith’s Three Morning Bullets

Dovish Fed article out of @WSJ as another wanna be hawk (Williams) fades alongside stocks:


  1. VIX – does an explicitly more dovish Fed tone down short-term volatility here? My risk range model actually implies it could as the top-end of my range on front-month VIX no longer has a 4-handle in front of it (range still elevated, but 22-36)
  2. FX – Down Dollar = Up Yen = Nikkei Down (another -2.4% overnight), so not everyone is a winner; risk ranges are narrowing though as volatility across asset classes does this am (risk range for EUR/USD narrows to $1.10-1.14)
  3. RATES – UST 10yr dropped to 2.11% on the slowest rate of change in Non-Farm Payrolls since the Labor Cycle gains peaked in FEB, then back up this morning to 2.15% with Spanish 10yr +7bps approaching parity w/ UST at 2.14%


SPX immediate-term risk range = 1; UST 10yr 2.07-2.19%



Please call or e-mail with any questions.


Howard Penney

Managing Director


Shayne Laidlaw



LEISURE LETTER (9/8/2015) - Airbnb, CCL, RCL, UBER



Airbnb -  Some 17 million travelers from around the world stayed with Airbnb hosts in 150 countries this summer from May to the end of August, according to a summer metrics report Airbnb released today. And that number hasn’t topped-off: According to the company another 1 million travelers booked Airbnb stays for this Labor Day weekend in the U.S. The number of summer guests swelled from 7.4 million last summer to more than twice that amount this summer.

  • Airbnb guests from Paris, New York City and Seoul were this summer’s largest source markets and they made the most bookings for Lisbon, Upstate New York, and Osaka, Japan, respectively.
  • South Korea, along with Japan and Singapore, are the company’s fastest growing markets overall and China is one of the fastest-growing markets in terms of country of origin for travelers booking stays outside their country.
  • The report reveals the average age of this summer’s Airbnb guests was 35 years old, which is considered the oldest age for millennials, and female guests slightly outnumbered male guests–the split was 54% to 46% globally.

LEISURE LETTER (9/8/2015) - Airbnb, CCL, RCL, UBER - airbnb



CCL - A fire in the engine room of Carnival Liberty, while docked today at St. Thomas, has caused the evacuation of all passengers and crew.  No injuries have been reported and the ship is expected to depart after 8:00 p.m tonight, resuming its Caribbean cruise.  CCL said in a statement, “All guests are safely ashore in St. Thomas where they have been receiving assistance from Carnival personnel. The fire has been extinguished by the ship's automated suppression system and crew have confirmed the fire is out. The cause of the fire has yet to be determined.”



RCL -  Celebrity Cruises has canceled all overnight stops in Istanbul for the rest of the cruise season due to ongoing security concerns.  Three ships -- Celebrity Reflection, Celebrity Equinox and Celebrity Constellation - and eight itineraries are affected. Celebrity has already skipped overnights in Istanbul twice in the past few weeks. The latest move comes just four days after the United States government issued a Travel Warning for Turkey, stating "U.S. citizens traveling to or residing in Turkey should be alert to the potential for violence."



UBER - U.S. ride-hailing service Uber Technologies Inc will enter 100 more Chinese cities over the next year, doubling a previous goal set just three months ago.  

  • Uber’s China unit currently operates in almost 20 cities, Kalanick said at an event in Beijing held by Uber investor Baidu Inc.  
  • The speech comes a day after Kalanick said the China unit had raised $1.2 billion during ongoing fundraising, while people familiar with the matter told Reuters that larger local rival Didi Kuaidi had brought in $3 billion.
  • "When we started this year, we were about 1% market share. Today, nine months later, we're looking at about 30%-35% market share," Kalanick said. 



Macau Jewelry Sales - In the traditionally strong month of August, local jewelers still posted a much weakened retail performance than a year ago, say the Macau Goldsmiths Guild.  Despite the improved consumer sentiment of August, jewelery retailers here experienced a sales turnover fall of at least 20 per cent year-on-year in the holiday period even though some of them have adjusted their product mix to include more mid and low-priced items. 



Great Singapore Sale Statistics - Spending during the Great Singapore Sale (GSS) rose 2.2% over the previous year, as increased purchases by visitors offset lower spending by locals, MasterCard said on Monday.

  • Citing transactions made by local and overseas-issued MasterCard card holders, the credit card company said visiting cardholders spent S$708 million during GSS, a rise of 15.3% compared to a year ago. 
  • Spending by local cardholders, however, dipped to S$1.41 billion from S$1.46 billion in 2014.
  • MasterCard said spending on restaurants and eating places were the top category for visitors from Australia, Malaysia, China and Japan.



Australian Online GamingThe Australian government intends to reevaluate online gambling operations overseas that take bets in Australia, Xinhua reports.

The Chinese official news agency quotes Social Services Minister Scott Morrison as saying the online gambling market in Australia is worth $1.6 billion a year but that 60% of online betting revenue goes abroad, where the Australian taxman and regulators cannot touch it.  Mr Morrison said the government would do a “serious review” of Australia’s law on gambling.




  • Pennsylvania GGR - SSS (3.32%) YoY 
  • Maryland GGR -  SSS (7.62%) YoY 

Takeaway:  As we pointed out in our 8/31/15 note "REGIONAL GAMING: AUGUST JUST A BLIP", August regional gaming revenue was likely to underperform July. The first two regional gaming states to report suggest we were right. However, we still think September will bounce back.





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





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