A much needed shot in the arm, Macau table revenues jumped sequentially last week, causing us to raise our December forecast. However, while any improvement is welcome, let’s put things into perspective. It’s only one data point, table revenues still fell double digits YoY, and the comparison was easier than week 1. Looking ahead, more government constraints may be on the way in the form of real-time Union Pay monitoring and sell side estimates are already not bearish enough for 2016. While maintaining our negative view of the Macau stocks, we didn’t feel that December GGR was necessarily a negative catalyst and we still feel that way. We do, however, remain on the bearish side and are looking for re-entry points on the short side.


See our detailed note: CLICK HERE

Euro, Oil and SPY

Client Talking Points


The Euro finally backs off -0.3% to $1.09 and European Equities are catching a bid on that. Don’t forget that the FTSE and EuroStoxx600 were down -4.6% and -4.0% last week vs. the S&P 500 -3.8% week-over-week.


After crashing another -11.6% to -41.1% year-to-date last week, Oil starts the week down -0.5%. Down Euro = Up Dollar, don’t forget – and if you think ECB President Mario Draghi is going to take the Euro back to $1.05 + Fed hikes, it’s #Deflation, in Dollars.


The S&P 500 has been down 18 of the last 26 trading days (top 3 up days came post terrorist attacks) and volume ripped (higher) +19% vs. Total U.S. Equity Volumes 1 month average on Friday; liquidity is there, on the down moves.


*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

MCD remains one of our top LONG ideas in the restaurants space. All indications are that all day breakfast is working, bringing back old customers and driving growth of new customers. Customers are pairing both breakfast and lunch items together in the lunch and dinner day, part which is helping drive additional sales.


McDonald’s Canada opened its first standalone McCafe this month. The much simplified concept intends to appeal to customers by offering both speed of service and low cost. They intend to be faster than their main competitor Tim Hortons and cheaper than Starbucks, carving out their own niche in the market.


This RH quarter is going to draw a Mason Dixon line between the Bulls and the Bears. The key factors that the Bulls (including us) need to see were profoundly present – giving us confidence that revenue will double, that we’ll see a 16% operating margin, and $11 in earnings power. In addition, RH beat the quarter, delivered 33% EPS growth in what should be the slowest growth quarter of the year, and it took up 4Q revenue guidance based on what it’s seeing so far this quarter (to 20%+).


The Bears got a nice little gift in the form of weaker Gross Margins due to promotional activity, and renewed concerns about management. The reality is that this is a transformational growth story that will change on the margin more often than it doesn’t. Based on our confidence in the earnings power at play here, we’d use any weakness as an opportunity to buy.


Implicit in our long TLT/short JNK bias is an expectation for high-yield spreads to continue along their recent trend of widening throughout the YTD.


“The U.S. economy is #LateCycle and the probability of a recession commencing by mid-2016 is extremely elevated – both in absolute terms and relative to the belief held by the overwhelming majority of investors and policymakers. Moreover, the risk of a global recession is also great in this scenario.”


The economic cycle doing what it always does (i.e. decelerate into a recession before bottoming and then reaccelerating) is reason enough to be bullish on the long bond and bearish on junk bonds, which are accelerating into full-blown crisis mode (the JNK ETF declined another -2% on Friday and is down -4.1% WoW, -5.8% MoM and -12.7% YTD).


Three for the Road


Hedgeye Guest Contributor | Cliggott: 'Bad, Bad Data This Week'… via @hedgeye



A good archer is known not by his arrows but by his aim.

Thomas Fuller


61% of the U.S. public was middle class in 1971 now that figure has dropped to 50%.

CHART OF THE DAY: What If The Data Continues To Trend Bearish?

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.  


"... What you may not know is that if the data continues to TREND bearish (on both growth and inflation), you’ll see both the slowest year-over-year GDP and S&P profit growth of the cycle in the 1st half of 2016.


Sure, there are plenty of buy-siders who agree with us on this. And they will continue to make money on that. But what about those who didn’t believe there would be something like a credit-cycle alongside this? Shall they all just “bar investor withdrawals”?"


CHART OF THE DAY: What If The Data Continues To Trend Bearish? - 12.14.15 chart

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Forecasting 2016

“I have seen the future and it is very much like the present, only longer.”

-Kehlog Albran


That’s a quote from a book called The Profit that was published in 1973 as a parody to a popular poetry book called The Prophet. I sincerely hope you’ve learned enough in this profession to realize that it’s processes that consistently predict the future, not pundits.


While last week’s macro market moves shouldn’t surprise anyone who understands both #Deflation Risk and #LateCycle Slowing, it surprised me that the cover article of Barron’s 2016 Forecasts didn’t incorporate anyone seeing what’s happening in the present.


If you haven’t seen my crystal ball, I can show it to you. My wife gave it to me for my birthday last year. It’s cool. I have seen the future. And it is very much like what we’ve been seeing Mr. Macro Market price in since July.


Forecasting 2016 - fed forecast crystal ball


Back to the Global Macro Grind


At this time last year, the Barron’s Forecasts were looking for 3-3.5% GDP, 8-10% profit growth, a 3-3.5% 10yr Bond Yield and 2275 SP500. Now they’re looking for 2.5-2.75% GDP, +5% profit growth, a 2.75% 10yr Yield, and 2220 SP500.


In other news, US GDP is about to drop towards 1.5% year-over-year growth (at best) in Q4, profit growth is tracking down -5-10%, the 10yr Yield is at 2.13%, and the SP500 is -2.2% YTD in 2015.


But you already know that.


What you may not know is that if the data continues to TREND bearish (on both growth and inflation), you’ll see both the slowest year-over-year GDP and S&P profit growth of the cycle in the 1st half of 2016.


Sure, there are plenty of buy-siders who agree with us on this. And they will continue to make money on that. But what about those who didn’t believe there would be something like a credit-cycle alongside this? Shall they all just “bar investor withdrawals”?


Reviewing what the present told us about the future last week, here’s what macro markets did:


  1. Commodities (CRB Index) continued to crash, closing down another -2.9% on the week to -24.0% YTD
  2. Oil (WTI) continued to crash, deflating another -11.6% on the week to -41.1% YTD
  3. Nickel prices saw another -5.1% draw-down on the week to -44.3% YTD
  4. Coffee prices got slammed for another -4.5% deflation, taking their crash to -32.3%% YTD
  5. Natural Gas continued to crash, deflating another -9.5% on the week to -44.0% YTD
  6. The Canadian Dollar dropped another -2.9% on the week, making lower-lows at -15.9% YTD
  7. The Toronto Stock Exchange (TSX) lost another -4.3% on the week to -12.6% YTD
  8. Emerging Market Stocks (MSCI) deflated another -2.9% on the week to -17.5% YTD
  9. Latin American Stocks (MSCI) continued to crash, -1.9% on the week to -29.8% YTD
  10. High Yield Credit Yields ramped another +39 basis points to 8.34% (that’s +153 basis points YTD)


Apologies for not cherry picking and pointing out that the MLP #Bubble imploded to -41.1% YTD on the Alerian MLP Index. But I had to remind you that the Global Macro market isn’t the Dow, Bro. It’s interconnected and very much trading on #Deflation Risk.


No, you didn’t see any of the blue chippers forecast a breakout in High Yield Spread Risk in 2015. You saw them all hope for GDP to have a 3-handle and rates to “move higher” in a healthy way. They’re expecting more of that in 2016.


Don’t worry, I didn’t forget what happened in US Equities last week:


  1. SP500 lost -3.8% of its value and is heading into the messiest Santa Rally I’ve seen in a while at -2.2% YTD
  2. Russell 2000 got slammed for another -5.1% weekly loss and is currently -6.7% YTD
  3. Energy Stocks (XLE) led decliners (despite being up for 3 days) at -6.6%, but remain in crash mode at -23.6% YTD
  4. The Beloved “rate hike” Financials (XLF) got crushed, dropping -5.4% on the week at -5.2% YTD
  5. The ole “PMIs have bottomed” Industrials (XLI) dropped another -3.6% on the week to -7.0% YTD


And finally, from a SP500 Style Factor perspective:


  1. LEVERAGE: High Debt Stocks (EV/EBITDA) dropped another -4.4% on the week to -13.5% YTD
  2. BETA: High Beta Stocks got buried -6.6% on the week to -14.2% YTD
  3. SIZE: Small Cap Stocks were down another -5.7% on the week to -15.9% YTD

*Mean performance of the Top Quartile vs. Bottom Quartile of SP500 companies


I’m sorry (I really am). But I didn’t do this to macro markets. Economic gravity did.


And, while I think it’s totally fair to ask me in 1 on 1 meetings “where I could be wrong”, I think it’s equally fair to ask yourself if your prediction of the future is more in line with what’s actually happening out there, or with what you might like to see happen.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 2.10-2.22%

SPX 2001-2049
RUT 1116--1149

VIX 17.82-25.85
EUR/USD 1.05-1.11
Oil (WTI) 34.08-38.54

Nat Gas 1.85-2.11


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Forecasting 2016 - 12.14.15 chart

The Macro Show Replay | December 14, 2015


December 14, 2015

Hedgeye's Daily Trading Ranges are twenty immediate-term (TRADE) buy and sell levels, with our intermediate-term (TREND) view and the previous day's closing price for each name.  Click HERE for a video from Hedgeye CEO Keith McCullough on how to use these risk ranges.


  • Bullish Trend
  • Bearish Trend
  • Neutral

10-Year U.S. Treasury Yield
2.33 2.13 2.23
S&P 500
2,003 2,048 2,021
Russell 2000
1,101 1,154 1,115
NASDAQ Composite
4,902 5,043 4,952
Nikkei 225 Index
18,505 19,390 18,883
German DAX Composite
10,099 10,668 10,139
Volatility Index
18.71 24.86 22.73
U.S. Dollar Index
96.60 99.64 97.65
1.05 1.11 1.10
Japanese Yen
120.22 122.29 121.01
Light Crude Oil Spot Price
34.05 38.15 36.27
Natural Gas Spot Price
1.85 2.06 1.90
Gold Spot Price
1,050 1,080 1,059
Copper Spot Price
2.02 2.12 2.11
Apple Inc.
111 116 112
642 668 657
Alphabet Inc.
746 784 762
Facebook Inc.
102 107 104
Valeant Pharmaceuticals, Inc.
89.53 99.38 94.14
Kinder Morgan Inc.
13.23 17.66 16.00



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