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Earnings Scorecard: Not Good

Reality check. As Hedgeye CEO Keith McCullough pointed out this morning, 341 of 500 S&P companies have reported Q3 Earnings– sales are -5.5% and earnings -3.9%.


Earnings Scorecard: Not Good - 11 2 2015 EPS scorecard


In our view, this increasingly sour earnings data is further evidence that we are in the midst of a corporate profit recession and further confirmation of our macro thesis #SlowerForLonger (growth). 


Earnings Scorecard: Not Good - 11 2 2015 Recession


In related news, McCullough is watching the Russell 2000 as a proxy for slowing U.S. growth. Here's what he had to say in a note to subscribers from earlier this morning:


“Stocks are up' if you back out the 2000 stocks in the Russell which dropped another -0.4% last week to -3.6% YTD (in the Russell 3000, 62% of stocks are still -20-25% from their #bubble peaks) – reminds us of October 2007."


In closing, equity market bulls may want to consider the tweet below from Macro analyst Darius Dale:


Earnings Scorecard: Not Good - 11 2 2015 Darius earnings

REPLAY: Healthcare Analyst Tom Tobin On HedgeyeTV Today | $VRX $HOLX $MD

live & interactive: A segment you don't want to miss!


Healthcare Analysts Tom Tobin and Andrew Freedman were live in studio today at 2:30PM ET detailing their latest thoughts in the Healthcare space and answering viewer questions live.


They discussed a conversation they recently had with an alternative pharmacy CEO familiar with Valeant (VRX) regarding the controversial practices all over the media. The core issue has yet to be covered despite the attention Valeant's Philador alternative pharmacy has received:


What is the underlying growth rate without it?  


They also covered their outlook for Hologic (HOLX) earnings this week, as well as the #ACATaper theme as we head into Friday's U.S. Employment Report. Earnings reports so far in 3Q15 are confirming their #ACATaper thesis. The team also touched on MEDNAX (MD). According to their Maternity Tracker, maternity trends for MD are trending rapidly toward negative territory.  



LEISURE LETTER (11/2/2015) - WYNN, 0296.HK, UBER



November 3: 10:00AM: NCLH 3Q CC 

November 3: 10:00AM: RHP 3Q CC  

November 3: 10:00AM: H 3Q CC - , PW: 52469697

Novmber 4: 4:30PM: AWAY 3Q CC - ,PW: N/A

November 4-6: Anthem of the Seas Dead Cruise/Investor Event

November 5: 8:30AM: MPEL 3Q CC - , PW: MPEL

headline news 

Macau Transit Visas -  Macau’s transit visa scheme “is set to undergo a significant positive shift at year end,” says a new note from Union Gaming Securities Asia Ltd, quoting “multiple local sources.”  According to Union Gaming’s note, “persons entering Macau (ostensibly) for the purposes of transiting to a third party country would be allowed to stay for up to 14 days (from 7) upon one’s first entry into Macau during any given month, and would then be allowed to stay up to 7 days (from 2) for a second entry during the same month.”  


Takeaway: Government trying to make a difference, on th positive side.


WYNN - Wynn Resorts executives unveiled a handful of tweaks to their design for a $1.7 billion hotel and casino complex in Everett, MA including the substitution of a smaller, premium “ultra lounge” for a previously planned nightclub.  In a presentation to the Massachusetts Gaming Commission, Wynn said the size of the entire resort had only increased by about 3%.  

  • Wynn’s new plan calls for about 37,000 square feet of convention and meeting space. The “ultra lounge” is a newer approach to bars, DeSalvio said, which is currently being developed by Wynn in Las Vegas.  
  • Wynn said the change was, in part, driven by the difference in liquor laws between Massachusetts and Nevada.  “In Las Vegas, you can keep the bars open all night. And here, you can’t,” said DeSalvio, president of Wynn Everett.


Takeaway: We're still skeptical on the ROI


SUNCITY GROUP - Alvin Chau Cheok Wa, owner and chairman of major Macau junket operator Suncity Group, says it is “absolutely possible” that the city could see growth in casino earnings again next year, and that the trend of continuous closures of VIP gaming rooms seen in recent months would end.  The Suncity boss believes that Macau's gaming market has now bottomed out as “all the bad news” for the industry has already been digested and reflected.


Takeaway: While we're positive on the stocks over the near term, we've heard the bottoming story before. I suppose gaming revenue growth could turn positive - we're forecasting a GGR decline - but earnings? 


0296.HK - Emperor Entertainment Hotel Ltd, owner and operator of Macau casino property Grand Emperor Hotel, said it expects to record a “significant decrease” in consolidated net profit for the six months ended September 30, 2015, compared to the prior-year period.  The decline is attributable to “a net loss on the hotel property valuation due to the downturn of the Macau property market,” the company said in a filing to the Hong Kong Stock Exchange on Friday. The net loss “is a non-cash item and will not have a direct impact on the operation of the group,” the firm added. 



PAGCOR - The state-run Philippine Amusement and Gaming Corp (Pagcor) reported net income of PHP3.2 billion ($68.3 million) for the first nine months of 2015, up by 37.1% YoY. Pagcor said it was 24.6% ahead of its own PHP2.6 billion target for net income in the nine-month period.  Total revenue for the first nine months of 2015 rose 18.7% YoY to PHP35.7 billion, Pagcor reported. For the third quarter alone, total revenue was PHP10.9 billion.



UBER - In Germany, Uber withdrew from three major cities after the regulators urged the company to file in complex paperwork. Now, Uber officially abandoned Düsseldorf, Frankfurt and Hamburg.  In Germany, the only places where the car hailing app is still operational are Munich and Berlin.



Macau GGR - Macau’s casino GGR for October fell by 28.4% YoY to MOP20.06 billion ($2.5 billion), according to data released on Sunday by the city’s regulator, the Gaming Inspection and Coordination Bureau. It was the 17th straight month of GGR retreat measured year-on-year but the best monthly tally for the industry since May. 


Takeaway: Slightly better than anticipated


Macau Slots - Macau Gaming Equipment Manufacturers Association president Jay Chun thinks the gaming industry’s shift toward the mass market as the VIP market slumps is an opportunity for gaming machine makers to exploit, Business Daily reports.  “The industry is focusing on increasing the proportion of mass market,” the newspaper quotes Mr Chun as saying in an interview given in advance of this month’s Macao Gaming Show, which his association organises.  



Taiwan Casino - Residents in Taiwan’s outlying island of Penghu could vote again on whether to allow casinos in the county, reports Taiwan’s Central News Agency. The local government’s Referendum Screening Committee on Friday approved a proposal to hold a referendum early next year.  The success of Taiwan’s casino industry however could depend on mainland China’s visa policies.  Mainland China officials earlier this year have ruled out the idea of that country’s citizens being allowed to gamble in Taiwan casinos if such schemes ever come to fruition.



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.

CHART OF THE DAY: Capitulation With The Pain | $SPY

Editor's Note: Below is a brief excerpt and chart from today's Early Look written by Hedgeye CEO Keith McCullough. Click here to subscribe.


CHART OF THE DAY: Capitulation With The Pain | $SPY - 11.02.15 EL chart


... From a sentiment perspective, CFTC non-commercial Futures & Options net positioning saw the YTD highs in NET SHORT SP500 Index + Eminis from September melt-down by 72,584 contracts (covered) week-over-week.


That’s nice, because it’s a lot easier to have confidence in maintaining a bearish small cap, beta, leverage, etc. view when a consensus that wasn’t Bearish Enough to begin with (in JUL) doesn’t trust the short positions they put on at the AUG-SEP lows!

Championship Confidence

“To be of championship caliber, a crew must have total confidence in each other.”

-George Pocock


That’s how Daniel James Brown brings home the final chapters of his epic championship story about 9 Americans winning Gold at the 1936 Olympics in Berlin (Boys In The Boat). And that’s how I’m going to start my week. I love excellence. Congrats to the Kansas City Royals for winning The World Series last night.


Back to the Global Macro Grind


Instead of a big European and/or Chinese central plan (that was the catalyst for “stocks” 2 weeks ago), last week was dominated by the one thing a mediocre consensus has had wrong in 2015 – that #LateCycle US Growth continues to slow.

Championship Confidence - GDP cartoon 10.29.2015


In addition to New Home Sales, Durable Goods, and Consumer Confidence #Slowing, the week was capped off by a big sequential slow-down in Q3 US GDP to 1.5%. The new bull case is that it ended up being “in line” with a consensus estimate that was cut in ½ in the 3 months prior.


But, no worries, everything is going to re-accelerate in Q4 (per consensus). And while we continue to have confidence that that’s dead wrong, it may take another bad jobs report at the end of this week to hammer home reality.


Pardon? I thought “everyone is bearish” so the jobs report could be bullish?


Yep. Keep on hoping for that, I guess. But there is absolutely nothing in our long-term cycle work that suggests the labor market stopped slowing in October. US layoff announcements actually hit new YTD highs.


Taking a step back, here’s what macro markets did last week:


  1. US Dollar Index traded sideways and finished the week -0.2% (after being +2.6% in the week prior) and is +7.4% YTD
  2. EUR/USD was flat week-over-week at $1.10, post the week prior’s Draghi Devaluation of -2.9% taking it to -9.0% YTD
  3. US 10yr Yield bounced 6 basis points on the week to 2.14% after re-testing the low-end of its 1.99-2.19% risk range
  4. CRB Commodities Index had a +1.0% bounce on the week (after deflating -2.9% in the week prior) and is -14.9% YTD
  5. Oil (WTI) bounced +4.5% on the week (after deflating -6.3% in the week prior) and is still in crash mode -21.6% YTD
  6. Gold deflated another -1.8% week-over-week and remains -3.8% for 2015 YTD
  7. Copper deflated another -1.4% week-over-week and continues along its recessionary path at -18.1% YTD
  8. SP500 closed the week +0.2% after having a big slow-volume bounce of +8.3% for OCT to +1.0% YTD
  9. Russell 2000 deflated another -0.4% week-over-week and remains -3.6% for 2015 YTD
  10. US Equity Volatility (VIX) rose as many asset classes fell, closing +4.2% week-over-week after correcting -38.5% in OCT


In other Global Equities “are back” news:


  1. European Stocks (EuroStoxx600) lost -0.5% on the week
  2. Emerging Market Stocks (MSCI Index) deflated another -2.4% week-over-week
  3. Latin American Stocks (MSCI) remained in #crash mode, dropping another -2.2% on the week


Yeah, Europe and Latin America (and maybe China?) is where all the new labor market “demand” is going to come from in Q4, eh? Cool. US Dollar denominated debt #Deflation Risk remains one of the most misunderstood for US equity market navel gazers.


Here’s another way to slice and dice last week’s performance - US Equity Style Factors (SP500 Companies) to continue to avoid:


  1. LEVERAGE – High Debt (EV/EBITDA) companies lost -1.0% last week and are -7.0% in the last 6 months
  2. BETA – High Beta Stocks lost another -0.6% last week and are -11.5% in the last 6 months
  3. SIZE – Small Cap Stocks were -0.2% vs. Large Cap +0.4% last week, taking Small Cap -10.8% in the last 6 months


Finally, from a sentiment perspective, CFTC non-commercial Futures & Options net positioning saw the YTD highs in NET SHORT SP500 Index + Eminis from September melt-down by 72,584 contracts (covered) week-over-week.


That’s nice, because it’s a lot easier to have confidence in maintaining a bearish small cap, beta, leverage, etc. view when a consensus that wasn’t Bearish Enough to begin with (in JUL) doesn’t trust the short positions they put on at the AUG-SEP lows!


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 1.99-2.19%

SPX 2015-2096
RUT 1135--1175
VIX 13.76-19.40
EUR/USD 1.08-1.11
Oil (WTI) 43.31-47.09


Best of luck out there this week,



Keith R. McCullough
Chief Executive Officer


Championship Confidence - 11.02.15 EL chart

The Macro Show Replay | November 2, 2015


Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.46%
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