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PNK 2Q 2013 CONFERENCE CALL NOTES

A better than bad quarter combined with strong margins reported at ASCA should provide a good environment for the stock today.


 

"We have entered into a definitive agreement to sell the Ameristar Casino Lake Charles development project to Golden Nugget and are pleased that the consideration we expect to receive will recuperate a vast majority of the capital invested in the project. In St. Louis, the Lumiere Place Casino and Hotel and Four Seasons sale process is also progressing rapidly."

 

"We are confident we can achieve at least $40 million of synergies and efficiencies of scale between the two companies (ASCA/PNK) and hope to meaningfully exceed that target."

 

-Anthony Sanfilippo, CEO of PNK

 

 

CONF CALL NOTES

  • Having Golden Nugget next to L'Auberge in Lake Charles will be a great outcome; will bring some customers from Texas market
  • Expect to close ASCA acquisition in early August 
  • Expect to exceed $40MM in synergies, even after Lumiere and Lake Charles sales
  • July has rebounded from May/June performance but not as strong as March/April #s; July is trending above 2Q levels
  • Spend per visit is in-line with historical levels; trips declined though
  • L'Auberge Baton Rouge:  Repeat visitation is strong: 55% returning; Hotel occupancy continue to be in the high 90s
  • L'Auberge Lake Charles:  1st half of 2Q they completed 1st phase of room renovation (5% of rooms available).  2nd phase of renovation will begin in fall 2013.  If you normalize hold, Lake Charles had one of the top 5 quarters of all time.
  • Belterra:  Ohio competition continues to affect visitation but impact from Horseshoe has been less than expected
  • New Orleans:  continue to see operating improvements
  • Focus on cost containment have offset revenue weakness
  • River Downs: will open 2Q 2014
  • River City:  hotel will open by Labor Day; on budget and on schedule

Q & A

  • Golden Nugget Lake Charles:  fair outcome of sale
  • Lumiere sale:  a lot of interest in the property (multiple parties); expect further information to share in the next few weeks
  • Trips lower YoY:  Midwest more pronounced than down South but pretty much across the portfolio
  • St. Louis margins:  bullish on mgmt there; Lumiere and River City both run very well 
  • Belterra:  recently opened a buffet and 3rd Stadium concept; very confident property is competing well with new competition in the region; heightened promotional environment; pretty disciplined in costs
  • Proceeds from Lake Charles will be used to pay down debt; leverage ratio will be lower as a result of this
  • Leverage ratio:  will have robust cash flow to pay down debt
  • Houston is underpenetrated
  • ACDL Vietnam: property scheduled to open tonight on Ho Tram Strip; cautiously optimistic; highly unlikely PNK will participate in capital call
  • Baton Rouge:  sees further margin improvement; hotel is executed well
  • 2Q NOL:  $270MM, not including impact out of Atlantic City; should end up around $500MM
  • Lumiere NOL tax base: $400MM 
  • Weak consumer environment:  impact more coming from lower tiers
  • Corporate expense run rate:  $5M to mid $5MM

Growth Signals?

Client Talking Points

US DOLLAR

Our intermediate-term TREND support line of $81.63 held and the US Dollar had a good day yesterday. Commodities? No, they did not fare as well. Incidentally, they aren’t having a good morning today either. This keeps the bullish US growth theme intact and moving along. Exactly what we want to see.

OIL

Brent is backing off our long-term TAIL risk line of $108.14. And that is a very good thing. It's the most bullish macro event of the week. The bad thing is our intermediate-term TREND line of support ($106.37) is still intact; we need that to snap to get this massive net long futures/options position under pressure. We are watching this one closely.

RUSSIA

Russian stocks do not like Bernanke tapering. Good. And they don’t like down Oil either (For the record, I like both!). With #RatesRising (10-year yield of 2.58%, great week) Russian stocks lead the losers down -1.3% this morning after failing to recapture TREND resistance of 1374. It ain't a pretty picture for Mr. Putin. Russia is down -9% year-to-date. I like it.

Asset Allocation

CASH 40% US EQUITIES 22%
INTL EQUITIES 12% COMMODITIES 0%
FIXED INCOME 0% INTL CURRENCIES 26%

Top Long Ideas

Company Ticker Sector Duration
WWW

WWW is one of the best managed and most consistent companies in retail. We’re rarely fans of acquisitions, but the recent addition of Sperry, Saucony, Keds and Stride Rite (known as PLG) gives WWW a multi-year platform from which to grow. We think that the prevailing bearish view is very backward looking and leaves out a big piece of the WWW story, which is that integration of these brands into the WWW portfolio will allow the former PLG group to achieve what it could not under its former owner (most notably – international growth, and leverage a more diverse selling infrastructure in the US). Furthermore it will grow without needing to add the capital we’d otherwise expect as a stand-alone company – especially given WWW’s consolidation from four divisions into three -- which improves asset turns and financial returns.

MPEL

Gaming, Leisure & Lodging sector head Todd Jordan says Melco International Entertainment stands to benefit from a major new European casino rollout.  An MPEL controlling entity, Melco International Development, is eyeing participation in a US$1 billion gaming project in Barcelona.  The new project, to be called “BCN World,” will start with a single resort with 1,100 hotel beds, a casino, and a theater.  Longer term, the objective is for BCN World to have six resorts.  The first property is scheduled to open for business in 2016. 

HCA

Health Care sector head Tom Tobin has identified a number of tailwinds in the near and longer term that act as tailwinds to the hospital industry, and HCA in particular. This includes: Utilization, Maternity Trends as well as Pent-Up Demand and Acuity. The demographic shift towards more health care – driven by a gradually improving economy, improving employment trends, and accelerating new household formation and births – is a meaningful Macro factor and likely to lead to improving revenue and volume trends moving forward.  Near-term market mayhem should not hamper this  trend, even if it means slightly higher borrowing costs for hospitals down the road. 

Three for the Road

TWEET OF THE DAY

OIL: Brent backs off the @Hedgeye TAIL risk line of $108.14; most bullish macro event of the week

@KeithMcCullough

QUOTE OF THE DAY

He who lives by the crystal ball will eat shattered glass.
- Ray Dalio 

STAT OF THE DAY

One big reason for Facebook's surge (up over 23% pre-market this morning): The number of people using Facebook on mobile phones or tablets increased by 51% to 819 million, year-over-year. That said, FB is still off its May 2012 IPO price of $38 per share.


July 25, 2013

July 25, 2013 - 7 25 2013 8 17 14 AM


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Bernanke's Society

This note was originally published at 8am on July 11, 2013 for Hedgeye subscribers.

“Any society that would give up a little liberty to gain a little security will deserve neither and lose both.”

-Benjamin Franklin

 

Who is this guy? Seriously. Bernanke is un-elected and un-accountable – but, evidently, has the power to change the entire risk parameters of the economy with an un-qualified market timing opinion that spits in the face of economic data.

 

I get the whole fear-mongering love for Ben thing. Politicians and bankers who put the country on the brink saved us from themselves in 2008 – or so they claim. Nailed it. Even if you believe that, it was so 2008-2009. We’re half-way through 2013 for God’s sake.

 

The last time I saw Dick Fuld, he was living large at my golf club; Timmy Geithner just got paid $200,000 to speak at an #OldWall conference ; and bankers who are long FICC (Bill Gross too) are begging Bernanke for more. Is this the society Franklin and Jefferson had in mind?

 

Back to the Global Macro Grind

 

Thanks for letting me get that off my chest. If it’s not self-evident to you that markets are going right squirrel on this, your internet connection must be down. Pardon the pun, but in a nutshell:

  1. American Purchasing Power (US Dollar) is getting pounded on this
  2. Gold, Silver, Oil, etc. (Bernanke Bubbles) are all ripping
  3. Treasury Yields are having their 4th down-day in a row, after rising on employment #GrowthAccelerating

So here’s the deal - Ben Bernanke is not only going to A) time the economic cycle (even though his growth forecasts have been wrong 58-73% of the time, depending on what year you use), he’s also going to B) time the market cycle.

 

#Great

 

Actually, to be balanced, what he’d say he’s attempting to do (which is unprecedented by the way during a recovery) isn’t timing, per se. I think these Keynesian types who have never risk managed a market or run a business in their life call it “smoothing.”

 

I call that reckless.

 

Mucker’s Policy Advice: longer-term, Mr. Market is already pricing in #StrongDollar and #RatesRising, so just let it go pal. Let free-market prices and economic cycles clear; or your legacy will be that of someone who kept trying to re-flate bubbles as they were blowing up.

 

If Bernanke doesn’t take Mr. Market’s advice on this, here’s what is most likely going to happen:

  1. US Dollar Debauchery = Commodity Reflation
  2. Commodity Reflation = Consumption #GrowthSlowing

In other words, with Oil prices ripping a move above our long-term TAIL risk line of $108.11/barrel this morning, Bernanke is going to effectively give everyday Americans an enema again. Not cool.

 

This is not new territory for this conflicted cat. Remember what he did with his “communication tooling” in September of 2012? He said he would print to infinity and beyond and commodities (Gold) had their last hurrah on that.

 

Then, within 2-3 months, markets were in bedlam, US Consumption growth tanked, and the USA printed a Q412 GDP number of 0.38%!

 

#Awesome

 

It’s especially awesome for the guy who gets paid to run Gold Bond funds. Why don’t we take rips on this volatility roller coaster over and over and over again? Bernanke is on the switch – we’ll have 3 coasters on the same track at the same time; he’s wicked good on timing!

 

What’s my economic strategy this morning?

  1. Prayer

Seriously. What on God’s good earth am I supposed to recommend you do on this? Lever yourself up with asset classes that are crashing? Fortuitously, we aren’t short anything related to Bernanke’s banker boy bonuses (FICC – Fixed Income, Currencies, Commodities). And we’re not short anything PIMCO yet either, so maybe I’ll just sell everything and take the rest of the summer off.

 

I’m getting really tired of all this un-American central planning anyway. We’ve had a great year, and there’s no way I’m letting whoever this guy thinks he is make me give it all back.

 

Our immediate-term Risk Ranges are now as follows:

 

UST 10yr 2.41-2.77

SPX 1627-1669

VIX 13.51-15.66

USD 82.64-83.95

Oil 105.56-110.28

Gold 1237-1302

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Bernanke's Society - Smoothing

 

Bernanke's Society - vp 711


Don't Lie To Me

“We have the ability to lie – not just to others, but also to ourselves.”

-Dan Ariely

 

As I was flying back from the Fortune Brainstorm Conference last night, I was grinding through the back half of Ariely’s The (Honest) Truth About Dishonesty thinking about his aforementioned quote. With Twitter policing the pundits in real-time, and the fun cops (SEC) taking some “smart money” guys down, do we really have the ability to lie in this profession like we used to?

 

I like Ariely’s book because I have my own self deceptions that we’ve been building a firm around this vision of unearthing the Old Wall’s storytelling for over half a decade now. But that’s hardly the total truth. Reality is that the tectonic industry plate-shift from opacity to transparency is much bigger than I’ll ever be. I’m just a Mucker on the front lines of it all.

 

Wall Street was a closed-network that paid a massive premium for inside information, front-running, etc. Now that is dying on opacity’s vine as an open-network (Twitter is The New Tape) transcends accountability. There are no more “grey areas” to compound returns in. The crowd can see most things now; it can quickly conclude what is black and white.

 

Back to the Global Macro Grind

 

“We want explanations for why we behave as we do and for the ways the world around us functions. Even when our feeble explanations have little to do with reality. We’re storytelling creatures by nature, and we tell ourselves story after story until we come up with an explanation we like…” –Dan Ariely (pg 165)

 

So, let me tell you a story this morning…

 

And allow me to start with the non-fictional parts, which are called market prices. Isn’t that where I should begin? Or should I begin with a thesis on where the last market price should be? Stylistically, there’s a critical difference.

 

The difference is where your storytelling starts…

 

There’s a clear divide between how we attempt to risk manage macro market moves and how some on the Old Wall do. Never mind starting with a macro theme or thesis, some just skip all of that and hire guys who gets told by other guys what Bernanke and Co. are going to say next (yes, almost the entire old boy network is still guys).

 

Do I think our Global Macro Themes are good lines of storytelling? Sure. So do our clients. Increasingly I’m hearing that’s really because we don’t start with an insider’s whisper or a theme at all – we start with the market’s last price.

 

To review, when I say we start with last price:

  1. I’m contextualizing the market’s last price within 3 core risk management durations (TRADE, TREND, and TAIL)
  2. TRADEs are 3 weeks or less; TRENDs are 3 months or more; TAILs are 3 years or less
  3. Context (TRADE/TREND/TAIL) is dynamic (i.e. it refreshes every 90 minutes of new price/volume/volatility data)

In other words, that’s where my storytelling starts – with my own pictures of the market’s message; not with where I want the market to be. Then my analyst team and I work backwards on things like long-cycle data, mean reversion risks, catalysts, etc. in order to probability weight whether or not there are any themes to discern.

 

Does this risk management process prevent me from making mistakes? Of course not. From a macro risk manager’s perspective though, I’d say that having the humility to start my every day with what Mr. Market thinks has prevented me from making the really big macro mistakes. But that’s just my version of the story.

 

In other news, #StrongDollar is still bad for Gold bulls:

  1. US Dollar Index = +0.4% yesterday; Gold -2%
  2. Immediate-term TRADE correlation between USD and Gold is still -0.91
  3. Long-term TAIL risk correlation between USD and Gold is still -0.87

I can tell you some great stories about #StrongDollar, Strong America – and I can remind you that the combination of #RatesRising and #StrongDollar is both the enemy of Gold and growth fears…

 

But I’ve already used up my best content on that.

 

The market’s 2013 macro message is trumping pretty much everything the Old Wall consensus wanted it to be. If you waited for the super secret insider whisper that Bernanke is going to taper, you were late. Mr. Market didn’t lie to me.

 

Our immediate-term Risk Ranges are now:

 

UST 10yr Yield 2.47-2.71%

SPX 1

VIX 11.89-13.46

USD 81.98-82.85

Gold 1

Copper 3.11-3.21

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Don't Lie To Me - Chart of the Day

 

Don't Lie To Me - Virtual Portfolio


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