September 8, 2015

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The Macro Show Replay | September 8, 2015


CHART OF THE DAY: The Latest of #LateCycle U.S. Economic Indicators

Editor's Note: The following chart and excerpt are from this morning's Early Look written by Hedgeye CEO Keith McCullough. If you're looking for a dynamic way to to get ahead of anemic consensus groupthink each morning click here to learn more.

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CHART OF THE DAY: The Latest of #LateCycle U.S. Economic Indicators  - z la lal la 09.08.15 chart


...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

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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.




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