In preparation for RCL's F4Q 2012 earnings on Monday, we’ve put together the recent pertinent forward looking company commentary.



  • "The last few months of booking activity have been fairly stable. Our deployment has been adjusted slightly to accommodate for the stronger markets and the early order book for 2013 is encouraging. There are still challenges in Europe, especially Southern Europe, but solid demand from other regions appears to be more than offsetting this."
  • [2nd Oasis] "We expect that any order would come at a lower cost per berth than either of the first two vessels and also that any order would include further advances in the energy efficient design."
  • "With a mid-year delivery in 2016, our five-year capacity growth rate would still remain in the low-single digits at roughly 3%."
  • "Currently, the fourth quarter sailings, our load factors are slightly below last year, but at slightly higher APDs. Caribbean itineraries, which account for 42% of our inventory in the fourth quarter, are showing the greatest strength. On the other hand, European itineraries, which account for 27% of our capacity, are forecasted to be down slightly."
  • "Overall, 2013 capacity will increase 1.3% with the largest increases coming in the Asia-Pacific region. Our European exposure is being reduced by approximately 10%, and Europe will now account for 27% of our product offering. Caribbean will remain our largest itinerary group and will account for 44% of our deployment."
  • "We are seeing a much more normalized booking curve from the North American market. Europe and particular Southern Europe has had a contracted booking curve. Northern Europe has actually had a pretty normal booking curve as we look out."
  • [Onboard yield] "We saw some strength in gaming, in retail and in short excursions."
  • [Overall fuel consumption] "We're in a fairly stable environment."
  • "While the ECA came into effect on August 1 of 2012, it isn't really until 2015 that the very – much more significant burden of sulfur requirements kicks into effect. So while we are facing a somewhat extra burden of fuel costs because of the first stage of the ECA right now and that will continue through the end of 2014, it's really not significant in the scheme of things for us and, I think, for the industry in general. The question is really what more will happen as we approach 2015? Will the ECA regime stay exactly in a fact as it is, or will there be potentially some adjustments through political or legislative process."
  • [2013 cost pressures] "I think we've talked about on the capital side that we are investing in IT and trying to upgrade a lot of our systems, both shore side and shipboard. Not all those expenses are capitalized, so we may feel some pressure there. I think we're looking at some modest increases in insurance, but I think they'll be manageable. We do have a number of revites, as Adam alluded to, over the next year, and there are costs that hit the P&L that come from there. And we're still evaluating things like food inflation and freight and whatnot. So there are some pockets of pressure, but again, I think we have pretty disciplined environment here that, hopefully, we can help keep this to a minimum.".



The Big Winner

Client Talking Points

Energy Crisis

The issue with energy right now is that oil isn’t soaring to $150 a barrel and driving profits at E&Ps and other companies the way it did in 2009 and 2010. That’s good for the consumer who doesn’t want to pay $5 a gallon when they fill up their car and good for global growth, but it’s bad for the energy guys. Still, interestingly enough, Energy is top performing sector in the S&P 500, up +7.6% year-to-date versus the S&P 500 which is up +5.04% for the same time period. The second best sector behind energy is financials at +5.77% year-to-date; clearly, energy has the legs. Our Energy Analyst Kevin Kaiser wrote this morning’s Early Look, the sum of which leads to this statement:


“Over our long-term TAIL duration, we believe that select companies highly-levered to US natural gas prices will generate the best risk-adjusted investment returns in the space.”


So there you have it. Have an excellent Friday and make sure you’re trading the risk range properly out there. 

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

We believe ASCA will receive a higher bid from another gaming competitor. Our valuation puts ASCA’s worth closer to $40.


With FedEx Express margins at a 30+ year low and 4-7 percentage points behind competitors, the opportunity for effective cost reductions appears significant. FedEx Ground is using its structural advantages to take market share from UPS. FDX competes in a highly consolidated industry with rational pricing. Both the Ground and Express divisions could be separately worth more than FDX’s current market value, in our view.


HOLX remains one of our favorite longer-term fundamental growth companies given growing penetration of its 3D Tomo platform and high leverage to the 2014 Insurance Expansion from the Affordable Care Act.

Three for the Road


“Murder on the dancefloor $CL-F” -@NicTrades


“No one has ever had an idea in a dress suit.” -Sir Frederick G. Banting


The U.S. created a less-than expected 157,000 jobs in January and the unemployment rate ticked up to 7.9%.

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.


TODAY’S S&P 500 SET-UP – February 1, 2013

As we look at today's setup for the S&P 500, the range is 26 points or 0.88% downside to 1485 and 0.86% upside to 1511.       














  • YIELD CURVE: 1.74 from 1.72
  • VIX  closed at 14.28 1 day percent change of -0.28%
  • FLOWS – pundits (specifically perma bears) can kick and scream about this not happening all they want – on the margin (where trading macro matters most), it’s happening. US Equity Fund Flows (ex-ETFs) positive for the 4th consecutive wk, showing inflows of $5.8B (vs $3.7B last wk). If this jobs report is good, 10yr yield could hit 2.09% today alone.

MACRO DATA POINTS (Bloomberg Estimates):

  • 8:30am: Nonfarm Payrolls, Jan., est. 165k (prior 155k)
  • 8:30am: Unemployment Rate, Jan., est. 7.8% (prior 7.8%)
  • 8:30am: Fed’s Dudley speaks at New York Bankers Association
  • 8:58am: Markit US PMI Final, Jan., est. 55.5 (prior 56.1)
  • 9:55am: U. of Mich. Conf Final, Jan., est. 71.5 (prior 71.3)
  • 10am: Construction Spend M/m, Dec., est. 0.6% (prior -0.3%)
  • 10am: ISM Manufacturing, Jan., est. 50.6 (prior 50.2)
  • 1pm: Baker Hughes rig count


    • House meets in pro forma session, 11am
    • SEC advisory panel meets on rules for small, emerging companies under federal securities laws, 9:30am
    • Washington Day Ahead


  • U.S. payrolls probably expanded at a quicker pace in Jan.
  • AB InBev may need to sell brewery to end U.S. Modelo lawsuit
  • Apple loses U.S. court bid to block Samsung Galaxy Nexus phone
  • Jan. auto sales: Light-vehicle sales may have risen 14%
  • Pfizer’s Zoetis raises $2.24b pricing IPO above range
  • China’s manufacturing sustained expansion in Jan.
  • Euro-area Dec. unemployment rate holds at 11.7%, est. 11.9%
  • Abe shortens list for BOJ chief as Japan faces monetary overhaul
  • Google submits antitrust proposal to EU commission, Almunia says
  • MetLife sees Provida deal adding about 5c/shr to 2013 earnings
  • Apple TV said to start carrying HBO shows in 1H of 2013
  • Wal-Mart gains 60-Day hiatus from picketing in U.S. labor accord
  • China approves HSBC’s sale of Ping An stake to Thai billionaire
  • Dell buyout by CEO, Silver Lake possible on Feb. 4: Reuters
  • Rajaratnam 2-time tipper Roomy Khan gets 1 yr in prison
  • China Export Rebound, IPad, ECB, Super Bowl: Wk Ahead Feb. 2-9


    • Mattel (MAT) 6am, $1.15 - Preview
    • Newell Rubbermaid (NWL) 6:30am, $0.42
    • AON (AON) 6:30am, $1.25
    • Brookfield Office Properties (BPO CN) 7am, $0.21
    • Imperial Oil (IMO CN) 7am, $1.00 - Preview
    • Lear (LEA) 7am, $1.38
    • Legg Mason (LM) 7am, $0.53
    • Merck (MRK) 7am, $0.81 - Preview
    • National Oilwell Varco (NOV) 7am, $1.44
    • Tyson Foods (TSN) 7am, $0.42
    • Ingersoll Rand (IR) 7am, $0.70
    • LyondellBasel (LYB) 7am, $1.14
    • WisdomTree Investments (WETF) 7am, $0.04
    • Beam (BEAM) 7:01am, $0.66
    • Domtar (UFS) 7:30am, $1.36
    • Perrigo (PRGO) 7:51am, $1.31
    • Brink’s (BCO) 8am, $0.68
    • Tidewater (TDW) 8am, $0.42
    • Exxon Mobil (XOM) 8:04am, $2.00 - Preview
    • Chevron (CVX) 8:30am, $3.06 - Preview
    • Franklin Resources (BEN) 8:30am, $2.38
    • NuStar Energy (NS) 8:54am, $0.38
    • Cymer (CYMI) 9am, $0.04
    • NuStar GP Holdings LLC (NSH) 9am, $0.38
    • Globus Medical (GMED) 4pm, $0.19
    • Realogy Holdings (RLGY) 4:25pm, $(0.11)
    • Brown & Brown (BRO) Post-mkt, $0.27


  • LME’s Only Woman Floor Trader Quits to Join Hong Kong Exchanges
  • Copper Trade Most Bullish in 15 Months on Recovery: Commodities
  • Blast at Pemex Headquarters in Mexico City Kills 25, Wounds 101
  • Oil Heads for Longest Run of Weekly Gains Since 2004 on Economy
  • Copper Set for Biggest Weekly Advance in Four on Chinese Revival
  • Wheat Rises as Lingering U.S. Drought Curbs Production Outlook
  • Gold Rises in New York as Investors Await U.S. Employment Report
  • Robusta Coffee Advances on Top-Producer Vietnam; Sugar Rises
  • Billionaire Singer’s Fund Sees Gold Rally Amid Losing Wager
  • Rebar Climbs to 8-Month High on China Manufacturing, Home Prices
  • Brent Oil Rally May Stall Near $118 a Barrel: Technical Analysis
  • Carbon Swings Hit Year High Amid Supply Concern: Energy Markets
  • Reshaping Panama Canal Trade Means Boom in U.S. Gas Flow to Asia
  • Gold Exports Caving No Bar as Deficit Stabilizes: Turkey Credit




YEN – getting Taro Aso’d to a fresh new low this morning as the old band (Japan’s Serial Money Printers) buy 10.3% of ESM (Europe) debt in January. Take their word for it, they are burning their currency.





GERMANY – with a manufacturing PMI print of 49.8 in JAN (vs 46 in DEC), there are very few countries in our GIP Model (Growth, Inflation, Policy) that look as good as Germany does right now = Growth Accelerating, Inflation Decelerating. Contrary to popular Keynesian belief, there is big upside to a strong currency – and that is the Euro right now, new high at $1.36 vs USD.











The Hedgeye Macro Team





CHART OF THE DAY: Fake it 'til You Make It


CHART OF THE DAY: Fake it 'til You Make It - EL chart

Fake it 'til You Make It

"To be a great champion, you must believe you are the best.  If you’re not, pretend you are.”

- Muhammad Ali


Last night Big Alberta (aka Daryl Jones) gave me the late look that I was to write this Early Look, so this morning I get to take extra creative liberties and subject you all to thoughts on my sector, Energy.


It’s a difficult space to make money in when oil prices aren’t going straight up, a la 2009 and 2010. 


Oil and gas companies – particularly the producers (E&Ps) – are highly promotional, as they have to be, in order to raise capital for what has become an incredibly capital-intensive industry.  In 2012, capital expenditures from S&P500 companies in the Energy sector were 39% of the index’s total; in 2000, they were only 12% (see Chart below).  Someone’s got to foot that bill, as the companies can’t do it on their own – the free cash flow yield of that same group was 0.0% in 2012, and if you back out a few cash cows like ExxonMobil and Royal Dutch Shell, you’ll find that most producers are not self-funding.


Nevertheless, in general, market participants hold the energy sector near-and-dear to their hearts.  Investors tend to anchor on recent history, and energy was by far the best performing sector over the last decade (XLE +200%).  And the sell-side knows what pays the rent – capital raises – so it’s not too surprising that Energy has the highest percentage of “buy” ratings and lowest percentage of “sell” ratings of all S&P500 sectors.


But is the love deserved?  Most E&Ps cannot generate a return greater than their cost of capital (aka “create value”), even with real oil prices near multi-decade highs and interest rates at multi-decade lows.  We shudder to think what a serious back up in rates would do to the sector…bankruptcy cycle?


But all is not lost (can’t get too cynical on a Friday)!  Among all the wealth destruction so colorfully described by activist investors in recent letters to the shareholders of Chesapeake (Icahn), Sandridge (TPG), Murphy Oil (Loeb), and Hess (Elliott), there are legitimate franchises and investment opportunities in the sector.  Over our long-term TAIL duration, we believe that select companies highly-levered to US natural gas prices will generate the best risk-adjusted investment returns in the space.


As we hover around nominal natural gas prices last seen on a consistent basis in the 1990s, it is a non-consensus view, so it needs some defending…


1.  Because natural gas is a local commodity, market fundamentals (supply, demand, and inventories) in North America impact prices in North America.  It is a remarkably efficient commodity market, and one which we can fundamentally believe in.  If we have a warm winter, natural gas prices go down – we get that.  We can’t necessarily say the same about global oil markets.


2.  In a world characterized by slow growth and tail risk, we think natural gas is a relative safe-haven.  If China has a debt crisis or the EU collapses, we will still heat our homes and turn our lights on.  US demand for natural gas is inelastic – in 2009 it fell only 1% compared to a 3% drop in US real GDP.


3.  Natural gas will continue to take power generation market share away from coal.  We estimate the natural gas demand from the power sector was +20% y/y in 2012, largely due to coal-to-gas switching and the retirement of aging coal plants.  At least 10% of existing coal-fired capacity is likely to shut down between 2012 – 2015 due to impending emissions regulations.


4.  Demand from the industrial sector should grow above GDP as new petrochemical, chemical, fertilizer, and steel plants come take advantage of the energy cost advantage in North America relative to the rest of the world.  As one example, Italy’s M&G Group announced last month that it will build the world’s largest single-line PET plant in Corpus Christi, Texas.  M&G remarked, “This is the largest PET investment ever in the western world and probably one of the largest investments recently announced in the US in the private sector.”


5.  Price is below the marginal cost of dry gas production, which we consider to be $4.50 - $5.00/Mcf, or the price at which producers can generate a positive return on a Haynesville Shale gas well.  We do think that we have seen the last of Haynesville Shale production growth.


6.  Longer-term, we are optimistic about new sources of natural gas demand: LNG exports and natural gas as legitimate transportation fuel.  With the right R&D and policy measures, both are economic and feasible, in our view.

We’re not going to give away the shop here, so if you’d like to discuss ways to invest in the thesis send us an email at .  Further, on Wednesday 2/6 we’re going to host a Black Book presentation and conference call for institutional clients on Gulfport Energy Corp. (GPOR).  There we have a very non-consensus view.  For now, we’ll just say that it’s one of the more promotional companies in the space...  Email for details on that call.


Have a great weekend,


Kevin Kaiser

Senior Analyst 


Fake it 'til You Make It - EL chart


Fake it 'til You Make It - yup

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