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You Talkin' To Me?

“Sometimes things strike a chord with people. Simple stuff.”

-Robert DeNiro


I was flying from San Francisco to LA last night and, taking a break from yesterday’s US Retail Sales and economic data slowing, I enjoyed reading Cigar Aficionado’s cover article conversation between Marvin Shanken and one of my favorite actors, Robert DeNiro.


Fully loaded with his 95 movie appearances and 2 Oscars winning performances, De Niro has too much epic content to count. But the aforementioned scene from Taxi Driver (1976) has to be one of the all-time greats.


“You talkin’ to me?” You think we’re gonna get a rate hike?  You think growth isn’t slowing? You talkin’ to me? Or are you long the Financials (JPM) and just talkin’ your book? I’m talkin’ mine this morning. That is the game. So let’s keep talkin.’


You Talkin' To Me? - de niro


Back to the Global Macro Grind


BREAKING NEWS: “Soft patch of data eroding the probability of Fed raising rates in 2015” –Hilsenrath, Wall Street Journal




JP Morgan (JPM) reporting a slow-down (and re-testing YTD lows) and Wal-Mart (WMT) losing the most market cap it has in one day in 25 years corroborates with a little more than a “soft patch”, though.  


Make no mistake. We’re talkin’ to you. This is a #SuperLateCycle slowdown.


Macro markets obviously agree with what we’ve been talkin’ about:


  1. US 10YR Bond Yield back below 2.0% this morning to 1.99%
  2. Russell 2000 -12.4% from her YTD top
  3. Gold leading gainers +1.7% alongside Treasuries yesterday


Oh, and the US Dollar re-testing her AUG 2015 lows where all of a sudden Down Dollar, Down Rates was seen for what it is – an obvious #GrowthSlowing signal.


But, but, Energy Stocks (XLE) we’re +0.9% on Down Dollar (oversold) yesterday – and Russian Stocks are +2.1% this morning (+9% in the last month) – isn’t that a “demand” signal, or something like that?


Uh, no. If it was, Consumer Discretionary (XLY) stocks wouldn’t have led on the downside (-1.0% yesterday) alongside the Financials (XLF) -0.8% and the Sector ETF (XLP) that has Wal-Mart, -1.2%. If growth was accelerating, rates would be rising too.


And this is what we’ve been talkin’ about on the road in California this week:


  1. Our #Deflation call is well over a year-old now and not as market-moving as our #GrowthSlowing call
  2. While both inflation and employment/consumption growth are classic #LateCycle indicators, consumption slows last
  3. As we enter a cyclical recession (globally), the jobs market looks #SuperLateCycle inasmuch as wage gains and spending do


Sometimes simple stuff, like cycles, strike a chord with people.


So we’re very appreciative of our growing audience on these matters as it’s not enough “this time” (it’s not different this time either) to blame everyone but consensus itself for not performing this year.


At 72 years old, Robert DeNiro gets that performance still matters.


To end on a positive note this morning, being right or wrong on Wall Street shouldn’t ultimately shape your life anyway. When Shanken asked DeNiro “what’s the one thing you haven’t done yet that you want to do before you die?”


DeNiro “pounded the table” and said: “I want to live as long as I can for my kids.” Amen, brother. You’re talkin’ to me.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 1.96-2.07%

RUT 1095--1179
USD 93.81-95.34
EUR/USD 1.12-1.15
YEN 118.25-120.48

Gold 1150-1187


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


You Talkin' To Me? - 10.15.15 chart

Down Dollar, Down Rates

Client Talking Points


The best longer-term idea we’ve had in Macro this year is Lower (Slower) For Longer, and the best way to express that view is being super bullish on the Long Bond (TLT) – 1.99% this morning with immediate-term oversold = 1.96%, in yield terms, but lower-highs across durations of resistance as #LateCycle employment and consumption (WMT -10% yesterday) slow.


We didn’t add Gold to the long side of our Macro Best Ideas until we could see what Gold loves more than anything else (Down Dollar, Down Rates – at the same time) in play; the question now is how fast can the U.S. data slow before ECB President Mario Draghi has to do EuroQE? That will be an up-Dollar #Deflation event; stay tuned; EUR/USD is signaling immediate-term overbought like Gold is at $1187.   


We made this our best incremental U.S. Sector Style Short on our Q4 Macro Themes call as we thought the next big surprise would be U.S. #GrowthSlowing (more so than #Deflation, which is over a year old theme for us) related – consensus is way longer XLF (Financials) than XLE (Energy) and we’d stay with that pivot until Draghi (or Japan) devalues vs. USD again.


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


Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

We think that the catalyst calendar is just starting to pick up, and should be the best that Restoration Hardware has seen – perhaps ever. There are two new and significant merchandising initiatives, which are solid on their own. But to pair them with the square footage growth acceleration seems almost like a fantastic coincidence. But it’s not. This has been in the plan all along. There’ll be many more new concepts and classifications – though we’d argue that the company can go deep and add $2bn in revenue with what it has.


To be clear, there’s much more to this story than just square footage growth – like the ability to consistently merchandise product people want in quantities they need.  Without the ability to deliver on that requirement, a retailer could have the greatest store in the hottest location with the best demographics, and it will still be nothing but a liability (regardless of how low the rent might be). That’s why square footage growth is grinding to a halt for other U.S. retailers. That’s also why the growth profile at RH is so powerful, and unmatchable by anyone we see in Retail today.


As we predicted, a rise in September regional revenues would serve as a catalyst for regional gaming stocks, and in particular, Penn National Gaming. For the record, PENN is up +12% since we added it to Investing Ideas back in May, outperforming the S&P 500 which has fallen -5% since then.


We believe shares of PENN have a lot more room to run, given its strong performance in key markets like Ohio and its successful opening in Massachusetts.  A handful of states still need to report their September revenue figures, but numbers have been in line with our expectations thus far.


PENN will be reporting Q3 earnings on October 22nd.


Bottom Line: We remain 50% below Bloomberg Consensus on GDP growth. Wall Street, the IMF, World Bank and OECD are all still forecasting global growth of around 3% for 2015.  We reiterate our call for growth to come in at or below half that rate.


While most #LateCycle growth expectations in macro markets peaked in April, the US stock market peaked in July as bond yields hit the market with their last head-fake of a “breakout.” That makes this bear market in growth expectations relatively young. With that considered, sit back and relax with your TLT and EDV.

Three for the Road


VIDEO: Why U.S. Recession Is Closer Than You https://app.hedgeye.com/insights/46867-mccullough-why-u-s-recession-is-closer-than-you-think… via @hedgeye



The quickest way to double your money is to fold it over and put it back in your pocket.

Will Rogers


Twitter is laying off 8% of its workforce nearly 336 employees to cut costs.




October 15: VAC 3Q CC ; PW: 13620306

October 15: WYNN 3Q CC , PW: 55746426 


NCLH - Regent Seven Seas will offer unlimited complimentary Internet to all passengers, starting with its winter 2016/2017 itineraries.  The luxury line, which already offers many inclusions such as alcohol, gratuities and round trip airfare, is also expanding its land tour program. Free three-night excursions will be offered in new locations such as Cape Town, Angkor Wat, Hong Kong and Beijing, and will include special experiences such as an African safari, a visit to the Great Wall of China or stop at a Thai elephant camp.



UBER - Uber has expanded its on-demand delivery service, UBER Rush in the US.  Stores can now have local couriers pick up and drop off their products to customers’ doorsteps in New York City, San Francisco and Chicago. Unlike Postmates, which offers a similar service in partnership with select retailers, UberRush can be integrated into merchants’ existing business models and included as a delivery option during checkout.


Small businesses can also opt to use ecommerce software from Uber partners Shopify, Bigcommerce, Clover, and ChowNow to power their online sales and start using UberRush right away. These platforms have make it easier to request deliveries as they automatically check if an order qualifies for UberRush based on its weight, size and destination.



UBER - London Mayor Boris Johnson has a message for cities resisting Uber Technologies Inc.’s ride-hailing service: disruption is inevitable and the best you can do is manage it.  “We licensed Uber a while ago in the knowledge that it will prove very difficult for the established black cab trade,” Johnson said. “We have to make sure that we do what we can to give the black cab trade a level playing field.”  


Takeaway: A slightly more positive tone coming from the London Mayor. UBER faces some big hurdles in a crucial market that is London. 


Casino Security - Macau’s Secretary for Security, Wong Sio Chak, said on Wednesday that the police have strengthened actions to prevent and combat illegal activities at the city’s casinos.  Mr Wong added that the increased surveillance would not jeopardise the development of Macau’s gaming sector. Mr Wong told local reporters that the police have already beefed up supervision and security controls in casinos and their vicinity. 



Dore Entertainment Update - The police estimate that VIP gaming promoter Dore Entertainment Ltd lost at least HK$520 million (about $66.67 million) in a theft which the company blames on a former cage manager, the Macao Daily News reports.  The Chinese-language newspaper quotes the police as saying they base their estimate on 49 complaints they have received.



Korean Casino Reps Arrested - Chinese police arrested 13 South Korean casino managers and several Chinese agents suspected of luring people from China to gamble in South Korea, state television reported.  In a report late on Tuesday, Chinese state television said police launched a probe in June into "criminal gangs" from five South Korean casinos, who "enticed" Chinese with free tours, free hotels and sexual services.  A South Korean tourism ministry official said the 13 Koreans are employees of Grand Korea Leisure Co Ltd (GKL) and Paradise Co Ltd, and that it was unclear if they had been charged.



Saipan Casino- Imperial Pacific International Holdings Ltd’s temporary casino on the Pacific island of Saipan has attracted more patrons than expected, according to the company’s managing director, Yan Shen.  Mr Yan told reporters in Hong Kong that the casino had had 5,700 to 5,800 customers a day since it opened in July.  The company will eventually replace the casino with a bigger, permanent one forming part of a complete resort.



Chinese Billionaire Index - The number of billionaires in China has overtaken that of the United States for the first time, an annual survey said Thursday (Oct 15), despite slowing growth in the world's second-largest economy.  China now has 596 billionaires, up a "staggering" 242 over the last year, Shanghai-based luxury magazine publisher Hurun Report said, surpassing the 537 Americans.  



Nevada Unemployment Rate - The jobless rate fell to 6.7% in the month of September. That was the lowest rate since July 2008.  Employers added 34,600 jobs YoY in September, for a growth rate of 2.8%. The month brought the 57th straight month of annual job gains.  Construction posted the biggest percentage growth rate, with an 8.8% increase that translated into 5,700 more jobs. The industry now has 72,000 jobs statewide, up from a low of about 46,000 in the recession, but just half of its peak of 148,000 in 2006.  The labor force grew as well, as job seekers entered the market. The state's work force of 1.43 million was 33,900, or 2.4%, higher than a year earlier.


Takeaway: Macro data out of NV and LV continues to improve. We expect accelerating growth in the LV locals casino market due to the improving economic environment (lower unemployment and higher housing prices) and more construction workers. We continue to like BYD on the long side. 


New Zealand Cruise Market- Cruise passengers cruising in New Zealand may have to pay an extra NZ$26.22 from next year, thanks to a new 'travel tax' to be imposed on 1 January 2016.  Travelers arriving in airports will pay the tax, but significantly less -- NZ$21.57 (incl. GST) per air passenger.  Although it is the cruise lines' responsibility to pay the tax for each passenger, they can choose to add the cost to cruise fares, according to the Tourism Industry Association New Zealand (TIA). 




  • Connecticut SS GGR:  +2.9% YoY
  • Detroit SS GGR: +4.3% YoY
  • West Virginia SS GGR: -3.3% YoY
    • PENN: +2.3% YoY

Takeaway: September results continue support our prediction of a sequential rebound in regional gaming revenues. BYD and PENN are our long calls in regional gaming. 

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ICI Fund Flow Survey | Safety First....+$20 BB Build in Money Funds

Takeaway: With investors favoring safety, money funds saw the largest inflow of all asset classes last week, bringing in +$20 billion.

Investment Company Institute Mutual Fund Data and ETF Money Flow:

In the 5-day period ending October 7th, investors continued to make withdrawals from risk assets including domestic equity and taxable bond funds. Domestic stock mutual funds lost -$1.3 billion, with a more substantial -$6.3 billion being redeemed in taxable bonds funds. Domestic equity funds have now lost a total of -$121.1 billion in withdrawals during 2015, which remains the worst year on record for domestic equity fund flows. Meanwhile, the only risk asset working is fixed income ETFs (exhibited by the +30% organic growth in BlackRock's fixed income iShares in its quarter yesterday), which saw +$5.4 billion of new subscriptions in the ICI survey this week. However, another emerging trend is the safety of cash, with money funds gaining +$20 billion in contributions in the 5 days ending October 14th. Investors are starting to rebuild cash on the sidelines with this week's substantial inflow to start the 4th quarter following the +$54 billion build in money funds in 3Q.


With investors continuing to seek safety, the current market environment supports our Long recommendation on money fund manager Federated Investors (see FII report) and our Short recommendations on equity managers Janus Capital and T. Rowe Price (See JNS and TROW reports).

ICI Fund Flow Survey | Safety First....+$20 BB Build in Money Funds - ICI1

In the most recent 5-day period ending October 7th, total equity mutual funds put up net inflows of +$326 million, outpacing the year-to-date weekly average outflow of -$377 million but trailing the 2014 average inflow of +$620 million. The inflow was composed of international stock fund contributions of +$1.6 billion and domestic stock fund withdrawals of -$1.3 billion. International equity funds have had positive flows in 46 of the last 52 weeks while domestic equity funds have had only 11 weeks of positive flows over the same time period.

Fixed income mutual funds put up net outflows of -$5.8 billion, trailing the year-to-date weekly average outflow of -$20 million and the 2014 average inflow of +$926 million. The outflow was composed of tax-free or municipal bond funds contributions of +$558 million and taxable bond funds withdrawals of -$6.3 billion.

Equity ETFs had net redemptions of -$1.0 billion, trailing the year-to-date weekly average inflow of +$1.8 billion and the 2014 average inflow of +$3.2 billion. Fixed income ETFs had net inflows of +$5.4 billion, outpacing the year-to-date weekly average inflow of +$1.2 billion and the 2014 average inflow of +$1.0 billion.

Mutual fund flow data is collected weekly from the Investment Company Institute (ICI) and represents a survey of 95% of the investment management industry's mutual fund assets. Mutual fund data largely reflects the actions of retail investors. Exchange traded fund (ETF) information is extracted from Bloomberg and is matched to the same weekly reporting schedule as the ICI mutual fund data. According to industry leader Blackrock (BLK), U.S. ETF participation is 60% institutional investors and 40% retail investors.

Most Recent 12 Week Flow in Millions by Mutual Fund Product: Chart data is the most recent 12 weeks from the ICI mutual fund survey and includes the weekly average for 2014 and the weekly year-to-date average for 2015:

ICI Fund Flow Survey | Safety First....+$20 BB Build in Money Funds - ICI2

ICI Fund Flow Survey | Safety First....+$20 BB Build in Money Funds - ICI3

ICI Fund Flow Survey | Safety First....+$20 BB Build in Money Funds - ICI4

ICI Fund Flow Survey | Safety First....+$20 BB Build in Money Funds - ICI5

ICI Fund Flow Survey | Safety First....+$20 BB Build in Money Funds - ICI6

Cumulative Annual Flow in Millions by Mutual Fund Product: Chart data is the cumulative fund flow from the ICI mutual fund survey for each year starting with 2008.


ICI Fund Flow Survey | Safety First....+$20 BB Build in Money Funds - ICI12

ICI Fund Flow Survey | Safety First....+$20 BB Build in Money Funds - ICI13

ICI Fund Flow Survey | Safety First....+$20 BB Build in Money Funds - ICI14

ICI Fund Flow Survey | Safety First....+$20 BB Build in Money Funds - ICI15

ICI Fund Flow Survey | Safety First....+$20 BB Build in Money Funds - ICI16

Most Recent 12 Week Flow within Equity and Fixed Income Exchange Traded Funds: Chart data is the most recent 12 weeks from Bloomberg's ETF database (matched to the Wednesday to Wednesday reporting format of the ICI), the weekly average for 2014, and the weekly year-to-date average for 2015. In the third table are the results of the weekly flows into and out of the major market and sector SPDRs:

ICI Fund Flow Survey | Safety First....+$20 BB Build in Money Funds - ICI7

ICI Fund Flow Survey | Safety First....+$20 BB Build in Money Funds - ICI8

Sector and Asset Class Weekly ETF and Year-to-Date Results: In sector SPDR callouts, the industrials XLI and materials XLB led contributions for the week. The XLI gained +3% or +$185 million in contributions, and the XLB gained +4% or +$77 million.

ICI Fund Flow Survey | Safety First....+$20 BB Build in Money Funds - ICI9

Cumulative Annual Flow in Millions within Equity and Fixed Income Exchange Traded Funds: Chart data is the cumulative fund flow from Bloomberg's ETF database for each year starting with 2013.

ICI Fund Flow Survey | Safety First....+$20 BB Build in Money Funds - ICI17

ICI Fund Flow Survey | Safety First....+$20 BB Build in Money Funds - ICI18

Net Results:

The net of total equity mutual fund and ETF flows against total bond mutual fund and ETF flows totaled a negative -$281 million spread for the week (-$677 million of total equity outflow net of the -$396 million outflow from fixed income; positive numbers imply greater money flow to stocks; negative numbers imply greater money flow to bonds). The 52-week moving average is +$1.6 billion (more positive money flow to equities) with a 52-week high of +$27.9 billion (more positive money flow to equities) and a 52-week low of -$19.0 billion (negative numbers imply more positive money flow to bonds for the week.)


ICI Fund Flow Survey | Safety First....+$20 BB Build in Money Funds - ICI10

The weekly data herein is important for the public asset managers with trends in mutual funds and ETFs impacting the companies with the following estimated revenue impact:

ICI Fund Flow Survey | Safety First....+$20 BB Build in Money Funds - ICI11 

Jonathan Casteleyn, CFA, CMT 



Joshua Steiner, CFA



  • Group Rev of $12.3 billion, up 5% QoQ but down 29% YoY

  • Adj EBITDA of $2.1 billion, UP 13% QoQ but down 36% YoY

  • Galaxy Macau

    • Adjusted EBITDA of $1.7 billion, down 30% YoY, up 19% QoQ
    • Played unlucky in Q3 which reduced Adjusted EBITDA by approximately $117 million
    • Hotel occupancy across the five hotels was 99%, Non-gaming revenue of $742 million, up 92% YoY and 60% QoQ
    • VIP Win % = 3.6% in Q3 2015 vs 3.2% in Q3 2014
    • Mass Hold % = 43% in Q3 2015 vs 44.9% in Q3 2014
  • StarWorld
    • Adjusted EBITDA of HK$514 million, down 43% YoY, up 1% QoQ
    • Played unlucky in Q3 which reduced Adjusted EBITDA by approximately HK$11 million
    • Hotel occupancy was 99%
    • VIP Win % = 2.7% in Q3 2015 vs 2.9% in Q3 2014
    • Mass Hold % = 40.3% in Q3 2015 vs 41.4% in Q3 2014
  • Broadway
    • Virtually broke even with Adjusted EBITDA of HK$(1) million 
    • Played unlucky in Q3 which reduced Adjusted EBITDA by approximately HK$3 million 
    • Hotel occupancy was 99%
    • Mass Hold % = 25.1% in Q3 2015 vs 20.7% in Q2 2015
  • Development cost savings of HK$400-HK$500 for Phase 2

  • Issuing a special dividend of HK$0.14 per share 

  • Mass and non gaming - growing relative to VIP, despite still being the market leader in VIP

  • Will be realizing a HK$800 million cost savings program, and so far is on pace to deliver this initiative.

  • Cost savings program was previously underway, but are just now quantifying the program. 

  • Hotel OCC continues to grow. Up to 99% from 96% over the same period last year

  • Bad luck hurt virtually all properties, luck on mass side was slightly better than the prior year period

  • Starworld Mass business growing very nicely 

  • Phase 2 Update - Invested a total of $15.7 billion thus far on the project 

  • Finished their strategic investment in Monaco's SBM (casino monopoly in Monte Carlo)

  • They remain cautiously optimistic regarding the future of Macau

  • Cite that a growing consumer in China will aid the growth of Macau

  • Anticipate to re-capture lost players when growth resumes 

  • Flexible balance sheet is a huge positive going forward and will allow Galaxy additional opportunities 


  • Cost savings? Where will the costs be taking out?
    • HK$800 million in savings and they have done about 35% of that thus far. Should be a 12-18 month program. 
    • Labor, marketing, and procurement will take up the largest share of the savings
    • Shuffling around their human resources more effectively 
    • Looking into strategic marketing initiatives - wouldn't specify 
  • China/Macau Government comments
    • Confident in the government's ability to support the industry and economy. See their willingness to work with the operators.  Recent steps are a real positive
  • Constantly looking to re-allocate their tables to Mass and premium Mass
    • Revenue mix is really beginning to shift from VIP to mass, non gaming and slots. Represents roughly 50% of revenue now 
    • Cited strong Golden Week as a positive sign for the future.
    • Opening of Horizon their premium mass offering has been very successful and will look to continue to use that as a future driver
  • Table allocations. Awarded another 100 tables?
    • They are in further talks with the government, but haven't received confirmation for the additional tables 
  • Tables are reportedly under utilized, how will they help?
    • Would offer flexibility to allocate more tables to effective areas of the casino. 
    • It is also another sign of support from the government
    • Will apply the tables to their highest and best use, (likely to premium mass segment)
  • Couldn't comment on Phase 2's specific contribution to EBITDA but said it was very accretive
  • Non Gaming was so strong due to Phase 2 and they are very pleased with this segment. 
  • Non Gaming Margin = Very high (wouldn't give exact numbers)
  • SSS growth looking strong in their retail segment. 
  • 60k foot traffic per day for phase 2 was the whisper number, is that still holding?
    • Still north of 60k per day, but they are also attracting better customers and Horizon will continue to drive that number higher
  • Phase 3 or 4 changes to CAPEX?
    • Studying diligently, focusing on consumer and forecasting where the consumer will be. 
    • CAPEX allocation is subject to change but for now, they haven't made changes
  • Retail area not open until end of july, should we see more of an uptick since they weren't open for the full Q?
    • Yes, expect to open more stores which will add to the non gaming number. 
    • They are very bullish on the potential of their retail segment

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