“Progress is impossible without change, and those who cannot change their minds cannot change anything.”

-George Bernard Shaw


Yesterday at our semi-annual, firm-wide meeting, Retail Sector Head Brian McGough asked Keith how many former Yale athletes Hedgeye employs now. In response, he had each of us stand up. Ten men from two sports (football and ice hockey), three generations (baby boomer, gen-x and millennial) and all walks of life arose – perfectly scattered about the room of 55-60 people. Coincidentally, if Brian had asked Keith what the total number of people employed at Hedgeye was when I joined what was then a startup research boutique in mid-2009, the same number of people would have stood up.


I thought that juxtaposition was really powerful – specifically because it really spoke to the progress we have made as a firm. In a generally difficult year for our industry, we have been blessed to experience another record year from the perspective of revenue (both absolute dollars and the associated YoY growth rate), employee headcount and charitable giving via our internal 501(c)(3) organization, Hedgeye Cares.


Irish Playwright George Bernard Shaw – the only person to have been awarded a Nobel Prize (Literature, 1925) and an Academy Award (Best Adapted Screenplay, 1938, for what would eventually become “My Fair Lady”) – was a lifelong supporter of philanthropy and socialism, as well as a longtime contributor to the efforts of the highly influential Fabian Society, which was a British organization founded to promote gradual (rather than revolutionary), left-leaning political change. The group would eventually become the foundation of the British Labour Party in 1900 – 16 years after its inception.


Back to the Global Macro Grind


Shaw’s quote above is as much about “change” as it is “progress” – as was yesterday’s Hedgeye firm meeting. The bottom-up analysts among you can cite all-too-well a myriad of examples of confident-turned-cocky management teams after a recent trend of outperformance. Pro-cyclical management teams that overinvest at cycle peaks and/or underinvest at cycle troughs tend to be the best destroyers of value over time. Sometimes just changing things up by implementing well-timed counter-cyclical investment strategies can make all the difference between falling victim to an economic downturn and growing into a sustainable, value-creating corporation.


Running a company is not unlike running money. Investors need to know when and how to invest counter-cyclically – if for no other reason than the fact that there are and always will be economic and financial market cycles.


With respect to the current economic and financial market cycle, our Macro Team’s most differentiated view remains that the U.S. economy is in the early innings of a #LateCycle Slowdown, which implies domestic economic growth has moved past peak and is likely to decelerate on a trending basis into an eventual recession – likely commencing in mid-to-late 2016. Our #EuropeSlowing theme – whereby our models are forecasting a sustained deceleration from cycle-peak rates of European economic growth toward a likely recession as early as 1H16 – continues to register as fairly non-consensus as well.


These views continue to be confirmed across global financial markets and via the underlying economic data:


  • Consumption Growth Slowing:
    • In the U.S. Retail Sales growth slowed sequentially in AUG +2.2% YoY from +2.6%. While +2.2% is in line with the trailing 3 and 6 month averages, it remains a far cry from the TTM average of nearly +3%. Moreover, domestic consumption growth is likely to trend lower throughout the balance of the year amid negative trends in both Employment growth and Consumer Confidence as of SEP, as well as materially steepening comparative base effects.
    • In the Eurozone, Retail Sales growth slowed sequentially from a cycle peak to +2.3% YoY in AUG.  What’s interesting to note is that the current 3MMA growth rate of +2.4% is in the 93rd percentile of all monthly readings over the previous 10 years. Making the Case for Eurozone consumption growth to accelerate from these levels is a bold call with comparative base effects steepening to cycle highs over the next three quarters.
    • In the U.K., Retail Sales growth is slowing on both a sequential and trending basis. The latest YoY growth rate of +3.5% (AUG) is below its 3MMA of +3.9%, which is below its 6MMA of +4.3%, which is below its TTM average of +4.6%.
  • Manufacturing Growth Slowing:
    • In the U.S., Industrial Production growth is slowing on both a sequential and trending basis. The latest YoY growth rate of +0.9% (AUG) is below its 3MMA of +1.0%, which is below its 6MMA of +1.5%, which is below its TTM average of +2.8%.
    • In the Eurozone, Industrial Production growth is accelerating on a both a sequential and trending basis. That said, a confluence of factors suggests it is highly unlikely to accelerate from the +1.9% YoY reading in JUL – specifically this morning’s contracting sequential readings in Germany (-1.2% MoM) and Spain (-1.4% MoM) (Eurozone AUG IP to be released next Wednesday), as well as the region’s benchmark Manufacturing PMI slowing on both a sequential and trending basis to 52 in SEP. The ZEW Eurozone Economic Expectations Index is also slowing on both a sequential and trending basis as of SEP (to 33.3).
    • In the U.K., this morning’s data showed Industrial Production growth is accelerating on a sequential and trending basis as of AUG. Is that sustainable with both the country’s Manufacturing PMI and Lloyds Economic Optimism Index slowing on both a sequential and trending basis to 51. 5 and 34, respectively, as of SEP and comparative base effects steepening to cycle highs over the next two quarters? Probably not.
  • Export Growth Slowing:
    • In the U.S., Export growth is slowing on both a sequential and trending basis. The latest YoY growth rate of -6.2% YoY (AUG) is below its 3MMA of -4.8%, which is below its 6MMA of -4.4%, which is below its TTM average of -3.5%.
    • In the Eurozone, Export growth is slowing on both a sequential and tending basis. The latest YoY growth rate of +6.6% (JUL) is below its 3MMA of +7.2%, which is below its 6MMA of +7.6%.
    • In the U.K., Export growth is slowing on a sequential basis and the breakdown is threatening to weigh on the formerly positive trend. The latest YoY growth rate of -1.0% (JUL) is well shy of its 3MMA of +2.5%.
  • PMIs Slowing:
    • In the U.S., the Markit GDP-weighted Composite PMI is slowing on both a sequential and trending basis. The current 55.0 reading (SEP) is in line with its 3MMA, but remains below both its 6MMA and TTM averages of 55.7 and 56, respectively.
    • In the Eurozone, the Markit GDP-weighted Composite PMI is slowing on both a sequential and trending basis. The latest reading of 53.5 (SEP) is below its 3MMA of 54.2, which is below its 6MMA of 54.4.
    • In the U.K., the Markit GDP-weighted Composite PMI is slowing on both a sequential and trending basis. The latest reading of 53.3 (SEP) is below its 3MMA of 55.1, which is below its 6MMA of 56.1, which is below its TTM average of 56.5.
  • EPS Revisions Negative:
    • NTM earnings revisions for benchmark equity indices in the U.S., Eurozone and U.K. are all flat-to-negative across any meaningful observation period going out to at least six months. Betting on multiple expansion as economic cycles roll over across developed markets is not a market call you will receive from Hedgeye.
  • Markets Signaling Bearish:
    • Despite the “bad news is good news” relief rally from generally oversold conditions and bombed-out sentiment, the S&P 500, DAX, EuroStoxx 600, FTSE 100 or FTSE All-Share indices are all still signaling bearish from an intermediate-term TREND perspective.


It’s worth noting that in both Hedgeye speak and in factor exposure performance, going from great-to-good and then from good-to-bad is bearish.


Sticking with the theme of change, if and/or when the aforementioned fundamental data and market signals become unsupportive of our view(s), we will be sure to change our minds with them.


Going back to yesterday’s company meeting, there are a myriad of planned changes to our mass market product offering and key additions being tacked on to our institutional research platform for Hedgeye subscribers all across the value-added curve to celebrate in the coming weeks and months. The most noteworthy of those changes would have to be our inaugural “Macrocosm” industry thought leader conference, which will be held Wednesday November 18th from 1-7:30pm at the Loading Dock in Stamford, CT.


Please note that there is a fee to attend the aforementioned conference and seating is extremely limited to existing top clients and key prospective clients of Hedgeye macro research. Email to the extent you’d like to RSVP. We look forward to enjoying the thoughtful debates with those of you who plan to attend and, to the extent you do, remember what George Shaw said about change:


“…those who cannot change their minds cannot change anything.”


Not even their prospective portfolio returns.


Our immediate-term Global Macro Risk Ranges (with intermediate-term TREND views in brackets) are now:


UST 10yr Yield 1.96-2.09% (bearish)

SPX 1 (bearish)
VIX 18.55-28.77 (bullish)
EUR/USD 1.11-1.13 (neutral)
YEN 119.01-121.65 (bullish)
Oil (WTI) 45.59-49.68 (bearish)

Gold 1125-1161 (bullish)

Copper 2.24-2.39 (bearish)


Keep your head on a swivel,




Darius Dale



Change - Chart of the Day


We will host a conference call on Thursday, October 8 at 2:30PM ET to present analysis on the September numbers, our updated model projections and outlook, Q3 earnings previews, and a more quantitative look at the implications of a rapidly declining junket business.  As always, we will entertain questions at the end of the presentation.



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



  • Update to our recent long Macau trade call
  • Hedgeye company EBITDA estimates vs the Street for Q3, 2015, and 2016
  • Revised 2015/2016 monthly market projections
  • "True" Mass trends
  • Research Topic: What happens if the junkets go away? - a more quantitative look at this topic first presented in our February 2015 Macau conference call
  • Q&A


Attendance on this call is limited. Ping  for more information

The Macro Show Replay | October 7, 2015


Early Look

daily macro intelligence

Relied upon by big institutional and individual investors across the world, this granular morning newsletter distills the latest and most vital market developments and insures that you are always in the know.

Big S&P Sector Variance

Client Talking Points


Both the commodity (WTI) and the stocks (Energy indexes) are signaling immediate-term TRADE overbought this morning post a bad U.S. jobs report and the USD signaling immediate-term oversold. The CRB Index was up +1.9% vs. SPX -0.4% yesterday – apparently the new bull market narrative for consumer stocks (only sector UP year-to-date) is rising gas prices?


It wasn’t just CRB/Oil/Gold vs SPX rotation of chart chasers forced to chase “reflation”, it was what consensus is overweight (Healthcare stocks) vs. underweight in Long Only land (Energy stocks). At one point, intraday, the XOP (Oil & Gas ETF) was +6% and Biotech (IBB) was DOWN -6% (Healthcare, XLV -4%)! #crashy


This is where using our risk range model matters most – when bearish TRENDs have counter-TREND rips to the top-end of our immediate-term range. On that score, alongside Oil, XOP, XLE, of the equity majors we’re registering overbought signals in: Nikkei, Hang Seng, KOSPI, DAX, CAC, and FTSE. If you’re still bearish Global Equities, this is where you sell (again).


**Tune into The Macro Show with Hedgeye CEO Keith McCullough at 9:00AM ET - CLICK HERE


Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

Our Consumer Staples team remains positive on General Mills coming out of the 2Q15 earnings call. We have been LONG GIS for the last six months and continue to have a favorable view of the company due to the following reasons:

  • Sequential improvement in cereal
  • Growth in Natural & Organic categories
  • Snacking
  • Cost cutting initiatives
  • M&A activity

Many of the regional gaming states will release September revenues next week and as we’ve written about, they should look a lot better than August. Overall same store revenue declined 5% in August (we had predicted –2%) but most of the decline was due to the calendar and a difficult comparison. For September we are projecting an increase of 2% YoY


Our Missouri tracker is forecasting September gaming revenues to be up 3.6% YoY. This is a 6% sequential improvement from August's YoY change of -2.5%. Meanwhile, Pennsylvania slot revenues were up 4% in September. Our thesis for a sequential rebound in September remains intact. We like PENN on the long side from these levels.


It was an important couple of weeks for those who were still wrestling with our lower-for-longer views. The brevity of the macro moves post-report Friday proves just how non-consensus that call remains in a year where the S&P 500 is down -8%. The scary thing with regard to Janet’s credibility is that bad news is now being priced in as bad news. Moreover, we believe this late-cycle weakness is likely to remain ongoing.  

Three for the Road


Now $YUM's CEO & board must DE-RISK the China business by implementing a plan to evolve the business model in a meaningful way..  #asap




Erroneous assumptions can be disastrous.

Peter Drucker


The average number of coffee drinks consumed is 2.1 per day in the U.S. People in their twenties consume 1.8coffee drinks per day, those in their thirties consume 2.0, those in their forties consume 2.2, those is their fifties consume 2.4 and those in their sixties consumer 2.4 (Zagat).

October 7, 2015

October 7, 2015 - Slide1



October 7, 2015 - 2

October 7, 2015 - 3

October 7, 2015 - 4



October 7, 2015 - 5

October 7, 2015 - 6

October 7, 2015 - 7

October 7, 2015 - 8

October 7, 2015 - 9

October 7, 2015 - 10

October 7, 2015 - 11


In short, the economy is slowing; the ag commodity complex prices are crashing; the herd is fat and growing and consumers are consuming less red meat.  Therefore, the current set up for a crash in red meat is nearly perfect:

  1. Because beef is among the most expensive proteins.
  2. The strong dollar is hurting the export market for beef.
  3. U.S. per-capita beef consumption in 2015 will decline to 53.9 pounds per person, the lowest in government data that goes back to 1970. 
  4. Cattle futures are in a free fall and could crash further and stay low for an extended period of time.  As a result, the bubble in red meat prices are going to burst, and could be in a bear market for years.




On Thursday, October 15th at 1:00 pm ET we are holding a Thought Leader call discussing the current crash in cattle prices and the long-term implications for the industry.  On the call will be James G. Robb, Senior Agricultural Economist and Director, Livestock Marketing Information Center. 


The call will focus on the following:

  1. Historical context to the current cattle market supply and demand dynamics
  2. The free fall in cattle prices
  3. The cattle life cycle and why the largest cattle herd expansion in history is now underway
  4. Why the “fat” inventory of cattle will continue to drive prices lower
  5. The ramifications of falling beef prices across the supply chain
  6. A time table for key industry events that could drive price down further



Jim Robb is the Senior Agricultural Economist at the Livestock Marketing Information Center (LMIC) and for 18 years has served as the Director. He has written several hundred articles and newsletters on a variety of agricultural marketing and cattle industry topics. Jim is a regular speaker at conferences throughout North America and has given expert testimony to the US Senate Agriculture Committee.


Prior to joining the LMIC, Jim was an Agricultural Economist at the University of Nebraska. He also has worked in the agricultural banking sector. Jim received degrees in Agricultural Economics from the University of California-Davis and from Michigan State University.


The LMIC began in 1955 and is a unique cooperative effort that supports market education, research, and outlook. Currently, the Center includes 28 US Land Grant Universities, Utah State University was a founding partner. The Center also includes six USDA agencies, and several associate organizations.


Call details and materials to be provided next week.


Contact for more information. 


investing ideas

Risk Managed Long Term Investing for Pros

Hedgeye CEO Keith McCullough handpicks the “best of the best” long and short ideas delivered to him by our team of over 30 research analysts across myriad sectors.