Commentary was better than the awful press release but concerns (e.g. Europe, dry dock costs) remain at the forefront



"Booking volumes during our seasonally strong wave period have remained solid with pricing comparisons improving in recent weeks. However, economic uncertainty in Europe continues to hinder yield growth.  "Despite considerable attention surrounding the Carnival Triumph, we had been encouraged to see booking volumes for Carnival Cruise Lines recover significantly in recent weeks. Attractive pricing promotions, combined with strong support from the travel agent community and consumers who recognize the company's well-established reputation and quality product offering, were driving the strong booking volumes. "Our long term business fundamentals remain strong as we broaden our customer base of new and repeat cruisers through attractive product offerings, high satisfaction levels and compelling value propositions. We expect to drive return on invested capital higher through a measured pace of capacity growth and a continued focus on fuel consumption savings.  We continue to expect over $3 billion of cash from operations this year and remain committed to returning free cash flow to shareholders in 2013 and beyond."


-CCL CEO Micky Arison



  • Q1: +3.9% capacity (+3.1% NA, +5.1%EAA (+17% in AIDA brand)
  • Q1: net ticket yields : -3.3% (-5.8% EAA, -1.5% NA (2/3 of capacity in Caribbean); net onboard yield +1.1% (increase in NA brand offset by EAA brand weakness)
  • Q1 Fuel price were down 4% YoY--saved them 3 cents
  • 2013 Wave bookings (JAN 6-MARCH 10):  fleetwide pricing slightly ahead, bookings running ahead;  NA bookings running higher with slightly higher pricing; EAA bookings substantially higher with slightly lower pricing
  • Post Triumph, ex Carnival brand, NA booking were higher ; EAA bookings were higher
  • Post Triumph, Carnival brand, bookings trended lower but expect bookings to improve and normalize over the next several weeks
  • Carnival Dream may have some effect on bookings and have taken that into guidance
  • Will not break out quarter by quarter but overall bookings are behind last year at slightly lower pricing.  NA bookings behind at slightly higher pricing; EAA bookings behind on lower prices.
  • Caribbean/Alaska pricing is higher on lower occupancies
  • Europe pricing/occupancies is lower; however, seeing significant uptick in European brand bookings
  • Reduced ticket price trends contributed $0.14 decline (1/2 NA, 1/2EAA); lower onboard yields 6 cents; 5 cents ship modification costs (aka dry docks)
  • Carnival Triumph: issues will take time to review and resolve


  • Hopeful Legend will sail its normal itinerary
  • Will be more promotions, factored into guidance
  • Won't see a huge incremental in sales and marketing
  • Maintenance capex more  like $600MM+ recently--the forecast CCL gives is around 800+
    • Spending more on per berth basis as ships get older
    • CCL doesn't capitalize dry dock costs
  • Dry dock days are between 12-13; scheduled routinely twice every five years or once every three years for each ship
  • 2013:  425 dry dock days planned
  • Since 1Q Onboard spend was only up 1%, CCL took down 2Q, 3Q, and 4Q a little bit from previous guidance.  All major categories will still be up but not as much as previously
  • 30 cent guidance range is attributed to economic uncertainty in Europe and all the recent ship events
  • UK/Germany:  while bookings curve is still closer in,  bookings have improved.  For summer/early Fall, price cuts were taken to maintain occupancy.
  • Still struggling with Italian uncertainty but encouraged by Costa brand
  • Spain continues to be a challenge but our presence is small; we expect better performance in 2013 vs 2012
  • Overall, Southern Europe was tougher than they thought
  • Moving up dry docks that would have occurred in 2015 to 2013
  • The 'hiccups' seen in the past couple of weeks are not major issues 
  • Huge decline in bookings (Carnival brand) immediately following Triumph but did not last very long
  • From a consumer standpoint, most look at each brand but don't really connect to the corporate level.
  • Costa had added a 2nd ship in Asia--pricing is good.
  • Princess ship in Japan in late April; a second Princess ship in 2014 in Japan
  • Why were commission/transportation expenses lower? Air cost as a % of mix is lower--less guests buying from CCL overall does not affect that #



  • The change in net yields is due to the economic uncertainty in Europe and pricing promotions for the Carnival brand combined with less than expected growth in onboard revenue across the group.  The company also expects net revenue yields on a current dollar basis to be flat for the full year.
  • The company expects net cruise costs excluding fuel per ALBD for 2013 to be up 2.5 to 3.5 percent on a constant dollar basis compared to up 1 to 2 percent in the December guidance. The change in cost guidance is due to the impact of repair costs, as previously announced, as well as, expenses related to the enhancement of vessels in the remainder of the fleet as a result of the ship incident.


PM and Currency - Does It Matter?

The quick answer to our title question is either:

  1. No, not really, but....or...
  2. Yes, however...

Translation doesn't impact the value of a business, hyperinflationary events aside.  However, to the extent that multiple market participants make buy and sell decisions based on factors impacted by translation, the share price can certainly be impacted.  The difference between the two answers above is one of duration.  Longer-term, number one is the correct answer.


PM has no domestic U.S. business, a fact that makes it unique within our coverage universe. We tend not to get bent out of shape because of currency, preferring to look at revenue and EBIT trends on a currency neutral basis as we recognize that translation from one currency to the other at a point in time doesn't have any impact on the value of the business.  However, we also realize that optics do matter to the extent that machines (and people) purchase stocks based on positive EPS revisions, or accelerating revenue growth, or any of a number of factors that are impacted by translation.


PM is also unique in that, as a tobacco company, it aggressively returns cash to shareholders via dividends and share repurchases, both of which are dollar denominated.  So, to the extent cash generated by the business is actually translated into dollars, currency movements do matter, as well as the market's perception being altered by the impact of translation.  In the example of PG or KO, for example, domestic operations can partially fund dividends or share repurchases, and cash generated outside the U.S. can be reinvested in local currency assets.


So, while PM posted one of the more impressive quarters in staples in Q4, with both robust top line and the ability to leverage revenue growth with EBIT growth and has an attractive multiple compared with other, slower growth staples assets, the recent moves in the currency market are worrisome in terms of sentiment and represent a potential overhang on the share price relative to the balance of the staples group.


To that end, we have examined PM's performance in relation to the DXY (a basket of currencies) since 2007.  While the relationship has weakened in recent years, it is apparent that periods of "strong dollar" have, by and large, meant tough sledding for PM's share price.


PM and Currency - Does It Matter? - PM and DXY1


PM and Currency - Does It Matter? - PM and DXY2


Have a great weekend,




Robert  Campagnino

Managing Director





Matt Hedrick

Senior Analyst


Expert Call TODAY With Peter Tchir

Expert Call TODAY With Peter Tchir  - Tchir 3.15.13


We will be hosting an expert call today, March 15th at 11:00am EST entitled "Fixed Income: Opportunities and What It Means for Equity Markets." Peter Tchir, the founder of TF Market Advisors, will discuss what he sees as being most impactful from a macro perspective and break down the current trends in fixed income and equity markets.




  • Fixed Income: Opportunities and signals versus stocks
  • Europe: Current state of play
  • Treasuries: The lack of float and what the Fed is doing
  • U.S. Corporate Credit: A focus on high yield, leveraged loans and the LBO names
  • Emerging Markets: A focus on currency wars



  • Synthesize what is happening in today's global economy  
  • Unveil actionable items in fixed income (via bonds or ETFs)



  • Traded over $1 trillion of fixed income products during his career, including complex structured transactions, bonds, loans, CDS and index products
  • Previously a portfolio manager at KLS Diversified where he employed a strategy that included single name credit positions and macro trades while actively taking advantage of short term mispricing of securities and indices
  • Founding board member of the CDX suite of indices and started and headed the credit derivatives index businesses at UBS and then RBS
  • Started his career at Bankers Trust where he ran high yield credit derivatives
  • Received BS in mathematics and computer sciences from the University of Waterloo and his MBA with distinction from Vanderbilt University



  • Date: Today, March 15th at 11:00am
  • Toll Free Number:
  • Direct Dial Number:
  • Conference Code: 818259#
  • Materials: CLICK HERE

the macro show

what smart investors watch to win

Hosted by Hedgeye CEO Keith McCullough at 9:00am ET, this special online broadcast offers smart investors and traders of all stripes the sharpest insights and clearest market analysis available on Wall Street.

The Energy Sector and the VIX

Takeaway: With the VIX hitting lower lows and with the XLE (the broad energy sector ETF) hitting higher highs, it’s creating a bit of concern.

In the chart below, you’ll see the divergence between the VIX and the performance of the XLE, a broad energy sector ETF, over a five-year period. VIX is a function of price, so there will be an inverse relationship with the XLE.


From a longer-term perspective, with the XLE approaching all-time highs and the VIX all-time lows is not a great set-up for future returns. In the immediate and intermediate terms, though, the sector is bullish TRADE and TREND, says our Energy Sector team.


The Energy Sector and the VIX - VIX XLE



Burning currency, rising stock market

Takeaway: Japan and Venezuela are each devaluing their currencies. Here's the impact on their stock markets.

Japanese and Venezuelan stock markets are two of the best performers this year, and they have one thing in common - both countries are devaluing their currencies. It's a boon for stocks now, as the chart below suggests. The chart shows the performance of both countries' stock markets since the beginning of November. However, the results of currency devaluations over the long haul rarely, if ever, end well.


Burning currency, rising stock market - Jpn Ven

Rational History

Takeaway: The last time we hit these levels in the S&P 500 was October 2007, and it was the worst time of Keith's career. He reflects on that.

This note was originally published March 15, 2013 at 07:55 in Early Look

“Study history, study history. In history lies all the secrets of statecraft.”

-Winston Churchill


The last time we hit these levels in the SP500 was the worst time of my career. It was October 2007, and most of my big (bearish) macro ideas weren’t working yet. Our credit guys were blowing up our fund – and the performance pressure at Carlyle was palatable.


I’ll never forget. Whenever the market tells me I am wrong, I remind myself what it felt like to stay wrong for months at a time. It’s not personal. It’s just the score – and you have to find it within yourself to either change your mind, or live with the consequences.


Hedgeye’s history starts from my professional lows (I got fired in November 2007). I’ve been writing about every market move I make since. Rich Blake and I wrote a book in 2010 called Diary of a Hedge Fund Manager - From the Top, to the Bottom, and Back Again. Oh how history sides with charts that look just like that. The US stock market is back again, and (thank God) this time I didn’t get run over.


Back to the Global Macro Grind


“History will assign a neat set of circumstances for this past crash – the popping of the housing bubble, one created in large part by the US government-sponsored entities, Freddie and Fannie, exacerbated by an overindulgent credit derivatives market. Sounds right.”


“If history has proven anything, it’s that patterns repeat, again and again. Greed takes over and the self-fulfilling groupthink of the herd trumps rational process.” (pages 175-176, Diary Of a Hedge Fund Manager)


Rich and I wrote that then, but after 5 long years of making mistakes, I’m not sure what “rational” means. Isn’t rational what we call something after it plays out in full? It’s very rear-view looking.


Here’s what I used to think was rational:

  1. Every positioning that was working

Here’s what I thought was irrational:

  1. Every position that wasn’t working

I thought wrong.


Now that every mistake I make is made out loud for everyone to see (over 2,000 long/short positions #timestamped since 2008). What’s rational has a new definition. It’s called the score. And my team is accountable to you on that front, every day.


I’ve been on the road seeing a lot of clients so far this year. That really humbles me. Sitting across the table from money managers gives me a keen sense of performance pressures, positioning anxieties  - really all the things that used to dominate my day. This is an extremely difficult profession to perform in over long periods of time. That’s why we call it the grind.


Today, my day isn’t like it was when the SP500 was last testing 1565. Today, I have many different pressures. I have my wife and kids to provide for. I have 46 employees and their families that I am responsible for – and I have you.


So keeping it shorter today, I just wanted to thank you – every one of you who has taken the time to read my rants for the last half decade; every one of you who is a new relationship; everyone who has both challenged and supported me in making this happen.


While markets may not always seem “rational” relative to your positioning, you can always believe in some very core principles in sports, business, and in life. It’s important to define what’s rational to you on that front. Then surround yourself with more of that.


Our founding principles: Transparency, Accountability, and Trust. These aren’t principles I give lip-service to. They aren’t the secret to modern day #PoliticalClass statecraft either. They are a rational recipe for a team’s long-term success.  


Our immediate-term Risk Ranges for Gold, Oil (Brent), US Dollar, USD/YEN, UST10yr Yield, VIX, Russell2000, and the SP500 are now $1568-1595, $107.98-110.04, $82.05-83.12, 94.12-97.26, 1.99-2.11%, 10.72-13.41, 937-959, and 1546-1569, respectively.


Best of luck out there today and enjoy your weekend,



Keith R. McCullough
Chief Executive Officer


Rational History - Chart of the Day


Rational History - Virtual Portfolio

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.