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And it’s not much different from what’s wrong with Vegas.



A competitor put out a note questioning the vitality of the regional markets.  We wholeheartedly agree that there is something wrong with the regional markets.  We’d take it even farther to say that there is something wrong with domestic gaming, not just regional.  Indeed, beginning in April of 2012, we put out a series of notes and analyses, discussing the lack of recovery in Las Vegas and the regional markets and the reasons behind it. 


The best explanation for domestic gaming weakness is twofold:  demographics and economic sensitivity.  The core slot player demographic is in decline – younger players are not playing slot machines.  There is no new customer base to fill the void of shrinking baby boomer generation.  Unfortunately, most attempts at attracting a younger base of players have failed.  Here are the bullets:

  • Average age of slot player
    • Still rising
    • Efforts to appeal to younger generations have not worked
    • Video game generation not attracted to archaic technology and random outcomes
  • Boomers artificially inflated gaming revenues
  • Smaller generations entering sweet spot

On the cyclical side, gaming has proved to be more sensitive to an economic downturn than virtually all other consumer sectors.  We don’t believe the macro will be an economic tailwind until the economy is consistently and strongly growing.  Higher taxes in 2013 will not help.


Back in April 2012, our sequential projection model was showing that the underlying trends in the regional markets were actually not getting better and could actually be getting worse.  Since then, monthly regional gaming revenues have generally flat lined on a sequential basis – adjusted for seasonality – and actually deteriorated in the summer.  Interestingly, as shown in the chart below, December was actually the best month of the year relative to our model even though the absolute YoY growth was -2%.  Unfortunately, Q1 is not shaping up well for the regional markets.




In Las Vegas, we follow the slot volume metric closely as this represents the highest margin revenue driver and ultimately is the best barometer of the health of the Strip.  Monthly strip slot volume was down most months of 2012 and generally lower since 2009 as the chart below shows.  This is very consistent with our demographic views and supported by the data.  As we’ve written about consistently, the data shows that:

  • Lower % gambling
  • First time visitors at all-time low
  • Smaller casino budgets
  • Daily hours gambled all-time low
  • Increasing average age of casino visitor
  • Younger crowd clubbing, not gambling 



Please let us know if you would like a copy of our April presentation “THE SLOW DYING OF DOMESTIC CASINOS”.


Today we bought Nike (NKE) at $53.92 a share at 9:57 AM EDT in our Real-Time Alerts. Buying back Brian McGough's long-term TAIL bullish position in one of the best companies levered to Global #GrowthStabilizing in the world. Still one of our best long ideas in retail, we buy on red.



Construction At A Glance

We view the Architectural Billings Index as a way to gauge non-residential construction activity. Despite the index gradually easing in December, it continues to show expansion at 52.0. The index is supposed to lead non-residential construction activity by 9-12 months and thus indicates that activity may strengthen by mid-2013.


Construction At A Glance - arch

Early Look

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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.

Playing The Retail Giants

Hedgeye Retail Sector Head Brian McGough has been quite vocal recently about his short Macy’s (M)/long JCPenney (JCP) trade. After the news hit that that Macy’s Chief Administration Officer Thomas Cole would be retiring after 41 years with the company, the stock sold off this morning. We covered the position in our Real-Time Alerts after buying it into the close yesterday and booked a gain. It still remains one of our top short ideas in retail.


Playing The Retail Giants - JCPM


On the other side of the trade is going long JCPenney. Improving sales trajectory for 2013 and incremental improvement in store layout and their e-commerce business will drive the stock higher this year. We like the price lower than where it is now but there’s room to consider buying it if you’re less sensitive to price.

Does Size Matter?

Earlier in the week, we took a look at the year to date performance across the consumer staples sector, looking for explanations related to short interest, 2012 performance and beta.  Today we round out our discussion of quant factors with a look at market capitalization versus YTD stock performance.  In much the same fashion as our prior attempt to identify the drivers of performance, our examination of market capitalization fell short.


Does Size Matter? - Market Cap vs. Performance


We even took a look at the space absent the big uglies (market cap >$75 billion>, but the data didn't provide any incremental insight.


Does Size Matter? - Market Cap less than 75


While these factors have been valuable indicators of outperformance in the broader market, consumer staples appears to be marching to its own beat.  We remain convinced that the consumer staples sector is seeing inflows as investors seek to participate in a market rally they may not necessarily believe.  We believe it, and see better ways to participate than with a consumer staples sector that is seeing historical valuation levels getting stretched.


Kind regards,




Robert  Campagnino

Managing Director





Matt Hedrick

Senior Analyst 




CAT: Global Dealer Sales

Caterpillar’s (CAT) dealer sales mirror that of durable goods in that both have been steadily weakening since Q2 of 2011. We don’t expect a rebound in CAT’s sales in the near-term as dealers and various corporations focus on reducing inventory and shift away from resource industries. Combined with a decline in mining capital expenditures over the last few quarters, CAT has its work cut out for the first half of 2013.


CAT: Global Dealer Sales - CAT Dealers