We’ve had a long Macau call on since late September but we fear the end of that trade is near. October was certainly better than September (seasonally adjusted) but it did trail off after Golden Week. High hold benefited the market, otherwise the YoY decline would’ve had a 3 in front of it rather than the actual 28% drop. The incremental data points for Macau Studio City will likely be negative, casting doubt on ROIs of the new Cotai properties and whether new supply will drive incremental visitation/GGR growth. Looking at November, we think the month is off to a sluggish start and our GGR forecast for the month of a 31% decline is larger than October’s and worse than Street expectations of a mid-20s drop. Finally, our 2016 EBITDA estimates remain well below the Street. Keep a trade a trade has been our mantra on Macau for the past several weeks and it looks like a good time to book profits.


We will be hosting a Macau call on Friday Nov 6th at 11AM to present more analysis on the October numbers, our model projections and outlook, and a new research topic. Please contact your Hedgeye salesperson for more details.


 Please see our detailed note:



This morning we were on Hedgeye's The Macro Show talking about Restaurant stocks. We gave an overview of the earnings season to date and touched on a few things to look at in Q4 and 2016.


Watch the replay below:

Timber... Still A Long Way To Fall for Kinder Morgan | $KMI

Takeaway: If you still own shares of Kinder Morgan, we suggest you tread very carefully.

In case you missed it... Barron’s ran a story with the headline below over the weekend. The story prominently features the analysis of Hedgeye Energy analyst Kevin Kaiser. Of course, Kaiser has been a longtime bear on Kinder Morgan (KMI) and a vocal critic of the dangers of MLPs.


Barron’s writer Andrew Bary calls Kaiser, “the company’s most outspoken critic.” We won't disagree with his assessment. 


Timber... Still A Long Way To Fall for Kinder Morgan | $KMI - z barrons headline


Here’s an excerpt::


“… Hedgeye’s Kaiser takes issue with investors’ dividend focus: ‘You need to look at other metrics because the dividend is an arbitrary number that is not representative of what the company actually earns.’


The company is expected to net 70 cents a share this year, based on generally accepted accounting principles. With a tax shield related to the MLP purchases last year, the cash earnings may top $1 a share. So Kinder Morgan’s current dividend could be about twice its cash earnings and more than three times its free cash flow, as defined by cash flow from operations, less all capital expenditures.”


Timber... Still A Long Way To Fall for Kinder Morgan | $KMI - 11 3 2015 kmi bary


Kaiser’s original short call on Kinder Morgan came on 8/2/2013 when shares traded for almost $39. Yesterday, KMI closed at $27.51 per share. In other words, the stock is down 30% since Kaiser’s call. 


Contrast Kaiser’s steadfast thinking with Wall Street's perma-bulls, who are increasingly hedging their bets. In the Barron’s story, writer Andrew Bary singles out Credit Suisse MLP analyst John Edwards as a “longtime Kinder bull.”


While we wouldn’t say Mr. Edwards has swung around to our dour outlook on the stock just yet, at a minimum, he's at least pulling his expectations down from the stratosphere. Following KMI’s disappointing Q3 earnings, Edwards cut his rating on the stock to "Neutral" from "Outperform." He also lowered his price target to $39 from $52.


It's a start!


The stock was up 3.4% yesterday, rebounding from its 15% tumble after the company reported lackluster earnings.  


Timber... Still A Long Way To Fall for Kinder Morgan | $KMI - Kinder Morgan


We're obviously not buying the bounce


In a recent note to subscribers, Kaiser reiterated his short call and explained why he continues to peg fair value for KMI in the range of 9x to 10x current EV/EBITDA, or $10-$13 per share.


In other words, at least 50% downside from here.


Bottom line: Kaiser has been warning about the dangers of MLPs for a long time now. Check out this laundry list of 8 MLP short calls he's made and how they have fared here. If Kaiser is right again, it doesn’t bode well for Kinder Morgan shareholders.


Timber... Still A Long Way To Fall for Kinder Morgan | $KMI - 11 4 2015 kmi prop


***If you’d like to learn more about how you can subscribe to Kevin Kaiser’s research as well as our other institutional research, please email

real-time alerts

real edge in real-time

This indispensable trading tool is based on a risk management signaling process Hedgeye CEO Keith McCullough developed during his years as a hedge fund manager and continues to refine. Nearly every trading day, you’ll receive Keith’s latest signals - buy, sell, short or cover.

Purchase Apps | October = Underwhelming

Takeaway: Post-TRID October has been underwhelming as mortgage purchase apps track ~5% below both August and 3Q15 levels of activity.

Our Hedgeye Housing Compendium table (below) aspires to present the state of the housing market in a visually-friendly format that takes about 30 seconds to consume.


Purchase Apps | October = Underwhelming - Compendium 110415


Today's Focus: MBA Mortgage Applications


Purchase Demand declined -0.6% week-over-week while decelerating -300 bps to +19.3% year-over-year.


The latest weekly data is largely uneventful but, on the margin, the last three weeks of October have seen a modest pullback in activity relative to both September and recent quarter averages.  Excluding the weeks immediately prior to and post TRID implementation, purchase demand in October is tracking -5.6% and -4.5% relative to August and the 3Q15 average (see 1st chart below).  Given the progressively easier back half comps, growth has remained solid and steady on a year-over-year basis at ~+20% YoY.    


Meanwhile, rates on the 30Y FRM contract moved back above 4%, rising +3bps in the latest week as the bond market bid both the short and long end higher in response to the rhetorically hawkish commentary out of the FOMC October meeting. At current levels, rates are in-line with the 2015 average of 4.02% and below the 4.35% average for 2014.  



Purchase Apps | October = Underwhelming - Purchase 2015 Monthly


Purchase Apps | October = Underwhelming - Purchase 2013v14v15


Purchase Apps | October = Underwhelming - Purchase   Refi YoY


Purchase Apps | October = Underwhelming - Purchase Index   YoY Qtrly


Purchase Apps | October = Underwhelming - Purchase LT


Purchase Apps | October = Underwhelming - Purchase YoY


Purchase Apps | October = Underwhelming - 30Y FRM




About MBA Mortgage Applications:

The Mortgage Bankers’ Association’s mortgage applications index covers more than 75% of mortgage applications originated through retail and consumer direct channels. It does not include loans delivered through wholesale broker and correspondent channels. The MBA mortgage purchase applications index is considered a leading indicator of single-family home sales and construction. Moreover, it is the only housing index that is released on a weekly basis. 



The MBA Purchase Apps index is released every Wednesday morning at 7 am EST.



Joshua Steiner, CFA


Christian B. Drake


Big FICC Fade Signal

Client Talking Points


Post another nasty #Deflation print out of the Eurozone (PPI -3.1% year-over-year vs. -2.6% last), the EUR/USD is down -0.4% and is finally signaling immediate-term TRADE oversold vs. an overbought U.S. Dollar Index into the U.S. jobs report.


WTI went squirrel yesterday vs. the correlation machines (up with the USD up), but it is also signaling immediate-term TRADE overbought alongside Energy Equity Beta (XOP and XLE).


For the umpteenth time this year, the UST 2YR Yield is in this 0.75-0.80 zone and signals overbought on “they’re gonna raise rates” – you’re one more bad jobs report away from 0.59% 2YR and 1.98% 10YR. FYI – we are staying with that call.


**Tune into The Macro Show at 9:00AM ET - CLICK HERE

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

Last week was a big week for McDonald’s (MCD), as they reached the inflection point we were predicting. Post earnings, the next catalyst for the stock is going to be the November 10th analyst meeting.


The meeting will be an opportunity for management to shed more light on the progress of all day breakfast, additional G&A cuts and the potential of doing a REIT. Our Restaurants team remains bullish on the name, and they look forward to giving you some material updates after the meeting.


Restoration Hardware (RH) shares gained 5.8% this past week. The margin story here is explosive. Margins were sitting below 10% on Friday, and we think they will be above 16% in 3 years. The key reason is that expense leverage on these new properties is like nothing we’ve ever seen (i.e. RH pays only 10% more for square footage that’s 300% larger).


In addition, the company does not have to proportionately grow its sourcing organization with the growth in its store base OR its category expansion.


Our estimate is that the company will add $3 billion in sales over 3-years and climb to $11 in EPS. The earnings growth and cash flow characteristics to get to that kind of number would support a 30+ multiple. In the end, we’re getting to a stock in excess of $300.


Our forecasts for domestic economic growth continue to be more accurate than the consensus. We anticipate economic growth will get a lot worse from here. That is why you want to own long-term bonds (TLT, EDV).

  • Real GDP growth slowed to 1.5% on a quarter-over-quarter seasonally adjusted basis. That was actually right at the top end of our range going into it (remember that the mainstream Q/Q annualized number is unpredictable)
  • On the Y/Y numbers, growth decelerated for a 2nd straight quarter to 2.0% from +2.7%
  • Consumption growth was a huge contributor to the number vs. the manufacturing side of the economy which continues to slow. However, take a look at the important chart below. We’re already past peak consumption growth. Consumption growth was positive on an absolute basis but remained rate of change negative with Q3 representing the 2nd quarter of deceleration off of the Q1 2015 peak
  • Both residential and nonresidential Investment decelerated sequentially and inventories contributed almost -1.5% bps to the headline number
  • Personal Income decelerated to +0.1% for Sep vs. +0.3% in August. The expectation was for a +0.2% print
  • Personal spending decelerated to +0.1% from +0.4%. The expectation was also for +0.2% print.
  • Core PCE printed flat at +1.3% Y/Y for Sep. vs. Aug. on a Y/Y basis. That number missed expectations for a +1.4% print

Three for the Road


Bad food sells. I get it.  Bad food layered with years of price increases doesn’t, kind of like.......  (fill in the blank)



There is more to life than increasing its speed.

Mahatma Gandhi


The national average for a gallon of gasoline dropped 1.1 cents during the past week to $2.18 a gallon, according to GasBuddy. That’s about 11 cents lower than one month ago and 79 cents less than one year ago. AAA puts the national average at $2.19.

CHART OF THE DAY: Every Closed Signal @KeithMcCullough Issued in October | #RealTimeAlerts

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


CHART OF THE DAY: Every Closed Signal @KeithMcCullough Issued in October | #RealTimeAlerts - RTA CoD


"... While our competition may have the illusion that we “got killed” in October, we’re big on the whole transparency thing and would like to submit today’s Chart of The Day, in #timestamped terms – every closed signal [in Real Time Alerts] that I issued in OCT.


Back to what’s really been killed:

  1. Inflation Expectations (see our #Deflation Theme from last year)
  2. Growth Expectations
  3. Earnings Expectations"