Indian Givers

“The new coins helped to wash away the old aristocratic order.”

-Jack Weatherford


That, of course, is not what the 16th century European aristocracy had in mind. As my man Jack Weatherford explains in an excellent chapter of Indian Givers, “Silver and Money Capitalism”, “the silver coins at first promised to strengthen the feudal order…” (pg 19). Never blindly believe what the government promises you.


Weatherford first penned Indian Givers in 1988 (then updated it in 2010) after writing about the history of porn in Japan in 1986. His writings are some of my favorites in economic history because his narratives are fully loaded with the inconvenient truths about government plans versus outcomes.


You can only lie to The People about policies that aren’t working for so long. In the end, the history of markets, money, and businesses are marked-to-market. And even though it may take a long-time for bad policy (like burning your currency) to fail, I thoroughly enjoy the thought of my son or daughter reading about how the 2013 Fed sucked in so many group-thinkers.


Back to the Global Macro Grind


There’s another Indian Giver making headlines this morning:


BREAKING: Rajan Raises Key Rate to Fight Inflation –Bloomberg


Booyah! That’s right, yo. India’s got a new central banker in the house- and he goes both ways (on rates). This is the 2nd interest rate HIKE in 2 months for Governor Raghuram Rajan. And the Indian stock market absolutely loved it, closing up +1.65%!


Huh? I thought that the other 90% of Bloomberg/CNBC headlines have been implying that if the US, Europe, or any country were to raise rates that the world as we know it would end?


Newsflash: it would.


But like during the 17th century enlightenment, it would end for the better! #EndofBackwardness


Indian Giver giveth to The People of India the following via a rate hike:


1.   #StrongerCurrency

2.   Lower currency adjusted inflation

3.   Breakout in Indian stock market




And yes, everything in the land of causal currency policy action is relative, but consider the alternative model (which Bernanke, Yellen, and most French Bureaucrats are begging for – Down Currency, Down Rates):

  1. India’s Rupee was in freefall in Q2 of 2013, having its biggest down days ever (yes, ever is still a long time)
  2. India’s Consumer Price Inflation (yes, calculated in Rupees!) hit new highs as the Rupee crashed
  3. India’s real-inflation-adjusted economic growth slowed and its stock market hit its YTD lows in AUG 2013

Then, Rajan raised rates (twice) and:

  1. India’s Rupee stabilized
  2. India’s Inflation slowed
  3. India’s growth stabilized

The Keynesian-anti-dog-eat-dog-currency-debauchery-department at Dartmouth better get on this. This Indian Giver is going off the reservation versus what they’re teaching undergrads for $63,282/yr.


It’s hockey season, so it’s a good time to take a shot at Dartmouth’s Big Green Keynesian mouthpiece-in-chief, dogmatic Danny Blanchflower. He’s the guy you may have seen recently on Twitter with his jersey yanked over his head by @HedgeyeSnakeye and @DanHannanMEP (Todd Jordan and Hedgeye fav Daniel Hannan).


Blanchflower was the guy who warned that British austerity was going to mean #EOW (end of the world) for the UK economy a few years back. He’s also of the ideology that a #StrongEuro and #StrongPound is bad for “exports”, or something like that.


In other news…


The slope of UK economic growth just clocked a 3-year high and both the British Pound and British stock market (FTSE) are breaking out to new highs as the world comes to realize that ending Mervyn King’s QE Pound Getting Pounded experiment hath ended.


Sound familiar?

  1. Currency Up (Pound has ripped from $1.49 vs USD to $1.61 in the last 3 months)
  2. Rates Up (10yr British Gilt Yield of 2.59% are up +81 basis points year-over-year)
  3. UK GDP #GrowthAccelerating to a 3yr high

No, I’m not saying that India and the UK are seeing economic growth booms. I’m simply reminding you that this is the only way out of a Down Currency, Rate Repression government policy.


No, the aristocratic order of Big Government Intervention doesn’t like paying The People instead of plundering them via currency devaluation taxes. And I for one like that very much.


Our immediate-term Risk Ranges are now as follows (we have 12 Big Macro Risk Ranges in our new Daily Trading Range product):


UST 10yr Yield 2.40-2.57%


BSE Sensex 20132-21279

VIX 12.46-14.92

USD 78.38-79.58

Pound 1.60-1.62


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Indian Givers - Chart of the Day


Indian Givers - Virtual Portfolio


TODAY’S S&P 500 SET-UP – October 29, 2013

As we look at today's setup for the S&P 500, the range is 24 points or 0.91% downside to 1746 and 0.45% upside to 1770.                       










THE HEDGEYE DAILY OUTLOOK - 10                                                                                                                                                                  



  • YIELD CURVE: 2.20 from 2.22
  • VIX closed at 13.31 1 day percent change of 1.68%

MACRO DATA POINTS (Bloomberg Estimates):

  • 7:45am: ICSC weekly sales
  • 8:30am: Producer Prices Index, Sept., est. 0.2% (prior 0.3%)
  • 8:30am: Retail Sales, Sept., est. 0.0% (prior 0.2%)
  • 8:55am: Johnson/Redbook weekly sales
  • 9am: S&P/Case Shiller 20 City m/m, Aug., est. 0.65%
  • 10am: Business Inventories, Aug., est. 0.3% (prior 0.4%)
  • 10am: Consumer Conf. Index, Oct., est. 75 (prior 79.7)
  • 4:30pm: API weekly oil inventories
  • NOTE: FOMC meets on interest rates; decision announced Oct. 30


    • Obama attends memorial service for late speaker Tom Foley
    • House Energy and Technology Cmte on EPA power plant regulations, 10am
    • House Energy and Commerce Cmte hearings on requiring approval of Keystone XL 10am; EPA coal regulations 2pm
    • House Financial Services Cmte hears from Federal Housing Administration Commissioner Carol Galante on agency bailout 10am
    • CMS Administrator Marilyn Tavenner to testify at House Ways and Means Cmte on agency’s oversight of health-care exchanges 10am
    • Executives from EMC, YHOO, LLY and USPTO Director testify on patent bill H.R. 3309 before House Judiciary Cmte 10am


  • AMR, US Airways, U.S. agree to mediation in antitrust case
  • Apple forecasts margins that miss ests. as costs gain
  • Food stamp benefits to contract 5% as stimulus ends
  • Tech, media cos. lobbying for bill to allow data disclosures
  • Michael Kors to replace NYSE Euronext on S&P 500 Index
  • CVSL said to offer $268m for direct seller Blyth
  • Chrysler amends IPO filing to update language
  • News Corp. employees to stand trial in U.K. for phone hacking
  • Obama to meet with CEOs today on cybersecurity
  • Glass Lewis advocates nay vote on Microsoft director Thompson
  • Ford to stop production at Romanian factory, ZF says
  • Boeing may give non-union plant more jet work, WSJ says


    • 3D Systems (DDD) 8am, $0.26
    • Actavis (ACT) 6:30am, $2.09 - Preview
    • Aetna (AET) 6am, $1.53 - Preview
    • AGCO (AGCO) 8am, $1.28
    • Air Products & Chemicals (APD) 6am, $1.47
    • Allergan (AGN) 9am, $1.21 - Preview
    • Ametek (AME) 7am, $0.52
    • Arch Coal (ACI) 7:30am, ($0.31) - Preview
    • Archer-Daniels-Midland (ADM) 7am, $0.48
    • Cobalt International Energy (CIE) 7am, ($0.17)
    • Cummins (CMI) 7:30am, $2.11 - Preview
    • Cumulus Media (CMLS) 9am, $0.09
    • Dana Holding (DAN) 7am, $0.55
    • DENTSPLY International (XRAY) 7am, $0.55
    • Ecolab (ECL) 8:25am, $1.03
    • Entergy (ETR) 7am, $2.33
    • Exact Sciences (EXAS) 7:30am, ($0.18)
    • Fidelity National Information Services (FIS) 7am, $0.71
    • Goodyear Tire & Rubber (GT) 7am, $0.67
    • Harris (HRS) 6:30am, $1.13
    • HCP (HCP) 8am, $0.77
    • Huntsman (HUN) 6am, $0.54
    • JetBlue Airways (JBLU) 7:30am, $0.22
    • Johnson Controls (JCI) 7am, $0.95
    • L-3 Communications Holdings (LLL) 7am, $1.95
    • LyondellBasell Industries (LYB) 7am, $1.59
    • MDC Holdings (MDC) 6am, $0.66
    • MeadWestvaco (MWV) 7:25am, $0.50
    • New Gold (NGD CN) 7:30am, $0.04
    • Occidental Petroleum (OXY) 7:30am, $1.90 - Preview
    • Paccar (PCAR) 8am, $0.85 - Preview
    • Penske Automotive Group (PAG) 7:30am, $0.70
    • Pfizer (PFE) 7am, $0.56 - Preview
    • Pitney Bowes (PBI) 7am, $0.41
    • Senior Housing Properties Trust (SNH) 7am, $0.43
    • Sensata Technologies Holding (ST) 6am, $0.55
    • TD Ameritrade Holding (AMTD) 7:30am, $0.37
    • Thomson Reuters (TRI CN) 7am, $0.44
    • TRW Automotive Holdings (TRW) 7am, $1.48
    • UDR (UDR) 8am, $0.35
    • United States Steel (X) 7:45am, ($0.43)
    • United Therapeutics (UTHR) 6am, $1.59
    • Valero Energy (VLO) 7:43am, $0.43 - Preview
    • Vertex Pharmaceuticals (VRTX) Bef-mkt, ($0.35)
    • Vishay Intertechnology (VSH) 7:30am, $0.23
    • Waddell & Reed Financial (WDR) 6:59am, $0.72
    • Waste Management (WM) 7:30am, $0.62
    • Xylem (XYL) 7am, $0.35 - Preview


    • Access Midstream Partners (ACMP) 4:15pm, $0.33
    • Aflac (AFL) 4:09pm, $1.48
    • Ameriprise Financial (AMP) 4:05pm, $1.73
    • Arthur J Gallagher (AJG) 4:10pm, $0.61
    • Baidu (BIDU) 4:01pm, $8.88
    • Boston Properties (BXP) 5:59pm, $1.28
    • Buffalo Wild Wings (BWLD) 4:01pm, $0.8
    • Caesars Entertainment Corp (CZR) 4pm, ($1.28)
    • CBRE Group (CBG) 4:05pm, $0.33
    • Chicago Bridge & Iron (CBI) 4:22pm, $1.10
    • Cirrus (CRUS) 4pm, $0.60 - Preview
    • Dolby Laboratories (DLB) 4:05pm, $0.46
    • DreamWorks Animation SKG (DWA) 4:02pm, $0.00 - Preview
    • Edison International (EIX) 4pm, $1.25
    • Electronic Arts (EA) 4:01pm, $0.12
    • Enbridge Energy Partners (EEP) 4:01pm, $0.25
    • EXCO Resources (XCO) 4:22pm, $0.09
    • Fiserv (FISV) 4:01pm, $1.49
    • Flextronics International (FLEX) 4:01pm, $0.21
    • Genworth Financial (GNW) 4:45pm, $0.26
    • Gilead (GILD) 4:01pm, $0.48
    • IAC/InterActiveCorp (IACI) 4:10pm, $0.94
    • Kimco Realty (KIM) 4:01pm, $0.33
    • LifeLock (LOCK) 4:05pm, $0.10
    • LinkedIn (LNKD) 4:05pm, $0.32 - Preview
    • Mueller Water Products (MWA) 4:20pm, $0.07
    • Plantronics Inc (PLT) 4pm, $0.65
    • Questcor Pharmaceuticals (QCOR) 4:01pm, $1.28
    • Range Resources (RRC) 5:02pm, $0.30
    • Ryland Group (RYL) 4:15pm, $0.90
    • Shutterfly (SFLY) 4:02pm, ($0.24)
    • SM Energy (SM) 7:07pm, $1.11
    • SolarWinds (SWI) 4:01pm, $0.36
    • Sonus Networks (SONS) 4:01pm, $0.01
    • Take-Two Interactive Software (TTWO) 4:05pm, $1.68
    • Tanger Factory Outlet Centers (SKT) 4:05pm, $0.46
    • Trulia (TRLA) 4:05pm, $0.08
    • Universal Health Services (UHS) 5:01pm, $1.02
    • WebMD (WBMD) 4pm, $0.09
    • Western Union (WU) 4pm, $0.36
    • Willis Group Holdings (WSH) 4:30pm, $0.20
    • Yamana Gold (YRI CN) Aft-mkt, $0.08 - Preview
    • Yelp (YELP) 4:03pm, ($0.01)


  • Corn Reaches Three-Year Low as Harvesting in U.S. Accelerates
  • Sugar Falling as Brazil Blaze Seen No Bar to Glut: Commodities
  • WTI Drops From One-Week High; Goldman Cuts OPEC Outlook on Libya
  • Gold Falls From 5-Week High as Dollar Gains Before Fed Meeting
  • Copper Rises as Withdrawal Orders Jump the Most in Four Months
  • Rubber Advances in Tokyo Amid Optimism for Chinese Demand
  • MORE: Copper Mine Capacity to Grow to 27.7m Tons in 2016: ICSG
  • Libyan Oil Production Sinks 50% as Nomads Halt Sharara Field
  • U.S. Pump Prices Drop to 2013 Low on Record Gasoline Production
  • Impala Workers Vote to Strike at World’s Biggest Platinum Mine
  • Phantom Ships Expose Weakness in Vessel-Tracking System: Freight
  • Paris Wheat May Drop 4.1% in Retracement: Technical Analysis
  • U.S. Shale May Be Dwarfed by Rosneft, Exxon Russian Shale Play
  • Rebar Advances in Shanghai as China Central Bank Adds Liquidity


























The Hedgeye Macro Team

















We have been looking to “buy” niche construction equipment companies at reasonable prices, in part to pair with “short” CAT.  We “added” TEX in June, but we would turn to MTW here.  We see the potential for MTW to transition from a Crane segment orders story to a break-up/activist story.  A rough MTW sum-of-the-parts suggests a break-up value of around $27 - $44/share, indicating between 30% and 115% upside from the current price.  While we are not the first to observe that a crane OEM and a foodservice equipment business make strange bedfellows at a mid-cap industrial, we think several factors have changed that could force a reckoning in coming quarters:

  • Investors are having increasing difficulty finding undervalued investments with the market near all-time highs.
  • Activism has more frequently entered the picture with just a whiff of value to unlock; close MTW peer OSK has proven a notable success. 
  • The M&A market is picking up, potentially facilitating transactions.  The IMI PLC foodservice equipment unit sold this month to BRK competes with MTW.
  • A rebound in non-residential construction activity into 2014 is likely to draw greater interest in and scrutiny of MTW. 
  • Europe is less of a mess, U.S. state/local finances have improved and developed market infrastructures spending may have some light at the end of the tunnel (e.g. ARTBA data).


There are buyers for both MTW divisions, likely at much higher prices than reflected in MTW’s current market value.  While there had been an activist shareholder at Manitowoc until the middle of this year (they apparently switched to TEX), there was little motion and greater agitation seems likely unless the share price moves to better reflect a potential break-up.  MTW is not risk free here, but the downside appears fairly limited relative to both the potential return and investment alternatives, by our estimates.






Key Points


Response to Weak 3Q:  MTW’s third quarter results last week were not exactly robust.  We held off MTW into the release, figuring that the shares would decline following disappointing Crane segment order results.  Implied orders in the Crane division fell 22.6% YoY, the worst showing since the financial crisis.  Worse, management did not lower guidance, backend loading 4Q and setting up a probable 4Q shortfall.  Inventories looked problematic.  While there were some rumblings of increased quote activity and new products, the report was weak.  However, MTW shares rallied.  Maybe the market reaction was wrong, but we don’t think so.  To us, this suggests that the focus is shifting to the broader MTW opportunity and has moved past the small ball of calling volatile quarterly crane orders.


Good Businesses, Good Price:  Finding undervalued industrials with solid market positions in good industries has become increasingly difficult with the market near all-time highs.  Manitowoc has two well positioned divisions in structurally favorable industries.  The crane industry is consolidated and profitable through the cycle, even if highly cyclical.  MTW is widely recognized as producing the Cadillac of cranes – no small benefit when operators have been criminally prosecuted for accidents.  The crane recovery is likely to be fairly muted given the long life cycle for the equipment (say 15-50 years), but it is likely to be a recovery nonetheless.  Foodservice equipment has many favorable characteristics that drive relatively high margins.  Foodservice equipment customers are sophisticated buyers that pay for equipment with superior performance.  That customer focus on product innovation and performance favors better resourced, larger competitors like MTW.


We invest in cranes from leading manufacturers that have a wide market acceptance, such as Liebherr, Manitowoc/Grove, Terex, Kato and Tadano….[and] avoid investment in less recognised brands, one-off, specialised, prototype or unusual model cranes.” – Boom Logistics LTD, 2013 Financial Report




Scenarios to Consider


A benefit of a MTW break-up is the apparent flexibility in how it is executed.  For starters, who really wants to watch MTW stumble through ERP implementation into 2016?  Why are these two unrelated businesses supporting a chunky $70 million/year corporate line?  Acquirers would have the infrastructure and platforms to operate these businesses without so much effort and overhead.  On the other hand, if MTW were to sell one division and keep the other, it could build a better focused franchise.  Capital from the sale of one division could be redeployed to build the scale and product portfolio to serve the remaining division’s markets.


ITW is a conglomerate. They do a lot of other things. Foodservice is not their core competency. Manitowoc, even though they -- foodservice is a big part of their business, they still do cranes …and other stuff.” – Middleby on Manitowoc 3/12/12


Selling the Cranes Segment:  Mining & construction equipment companies are desperately trying to refocus on construction as mining equipment sales evaporate.  That is one reason pricing in many construction equipment categories has been weak (e.g. CAT’s Cconstruction Industries).  Bucyrus long ago manufactured cranes; it doesn’t take a rocket scientist to see that there are likely to be synergies between the Bucyrus shovel business and MTW’s crane division - certainly more than between cranes and ice machines.  We think CAT is a potential buyer, but Komatsu, Hitachi or other global construction equipment makers could also be interested.  Chinese crane manufacturers are likely to increase competitive pressure over the next decade.  A CAT or Komatsu might better manage those changing dynamics, and both would probably love a little more revenue right now.  We would expect a sale to competitors like TEX or Liebherr to hit antitrust hurdles.  


Selling the Foodservice Equipment Segment:  While Middleby is not perfect, the roll-up strategy certainly seems to be working for investors.  Middleby is focused on consolidating a relatively fragmented industry, while we are not quite sure what Manitowoc’s strategy is.  Potential buyers for parts of this business include Middleby itself, ITW (competed for Enodis in mid-2008, but 'lost' to MTW), Marmon or Electrolux.  This is not to say that Manitowoc is running the business badly, but rather that the assets would likely fetch a higher valuation if sold than what is currently reflected in MTW’s share price.


Keeping Foodservice:  A Crane segment sale while retaining the Foodservice Equipment segment is not such a bad option.  The proceeds of a Crane segment sale could be used to chase Middleby’s strategy.  As the table below shows, if the market applied Middleby’s valuation to Manitowoc’s Foodservice Equipment revenue, just that segment’s valuation would substantially exceed MTW’s current enterprise value.  We know there are differences in product categories, like refrigeration, and a MIDD valuation might be a stretch, but the potential is likely there.


Keeping Cranes:  If MTW divested the Foodservice Equipment division, it could allow entry into adjacent niche construction equipment markets.  While this may seem less attractive, MTW would still be investing or acquiring into a cyclically depressed market.


Worked for OSK:  While it was a bumpy ride for investors, the value opportunity at Oshkosh was eventually forced on the market by activist involvement and broader recognition of the value opportunity.  MTW could well be the next OSK.


Sum of Parts: While a sum of the parts based on related company or comparable transaction values can help frame the opportunity, we are not always big fans of the approach, only begrudgingly presenting one for FDX for instance.  There are differences between MTW and the businesses shown, the valuation is subject to market volatility, and it is subject to the biases inherent in the selection of comparable companies – there are a number of potential complaints.  However, when the gap between the estimated value and the current market value is large, as it is here, we think a sum of the parts can be very useful.  In this case, the sum of the parts valuation range is not far off of our updated base-to-bull DCF fair value range of $19 to $32.  It appears to us that this value will be unlocked one way or another.




Background & Risk:  We have presented additional industry background in our Mining & Construction Equipment black book and expect to provide more detail on MTW.  Feel free to ping us for more background as well.  The most obvious risk is that we are buying into a likely 4Q Crane segment disappointment – and longer term, the crane cycle is likely to be fairly muted.  However, weak results may prove oddly beneficial as an activist incentive.   Our valuation highlights a favorable risk-reward tradeoff, but it is largely dependent on others accepting the re-framing of Manitowoc from an operating company traded on quarterly result to a prospective break-up, valued on a sum of its parts.


Implementation Challenges:  We do not see provisions that would necessarily preclude activist involvement, but they could be implemented in an attempt to thwart such efforts.  Manitowoc Crane segment distribution and service might be difficult to migrate to a CAT or Komatsu type dealer/distribution network.  We do not view these as insurmountable challenges, but we could certainly be proven incorrect in that assumption.







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In preparation for CZR's F3Q 2013 earnings release tomorrow, we’ve put together the recent pertinent forward looking company commentary.




  • We're working at generating a reasonable sequential growth in the third quarter over the second quarter in our core EBITDA contribution.


  • While conditions in the gaming industry remained difficult... during the second quarter with visitation and casino revenues down across much of the network, we're beginning to observe several tangible, positive underlying trends, resulting from the enhancements we've made to our footprint, particularly here in Vegas.
  • The implementation of resort fees at the beginning of March is having a positive impact on revenues and has had a minimal impact on occupancy levels at our properties. We anticipate these resort fees will provide incremental boost prospectively.
  • We're optimistic that the positive trends related to Vegas F&B and hotel revenue will gain momentum, particularly in next year, as business disruption from our construction projects on East side of Las Vegas ends and new projects come online and gain traction.
  • We've also seen some encouraging developments in our Groups business. Based on the forward calendar, we expect Group business to strengthen next year, improving from the relatively soft trends we've experienced thus far this year. We anticipate the business will grow by high-single digits year-on-year in 2014.
  • I mentioned the quantity of rooms that we have in Las Vegas is very significant. Recoveries in ADR should drive disproportionate EBITDA impact. We're down approximately $35 from the peak. This is on a per-room-night basis in 2007, so a recovery of half that will be worth anywhere between $80 million and $100 million of incremental EBITDA to the company. So recoveries in Las Vegas are very material to us. We think 2014 is shaping up to be a good year. Time will tell in terms of how much compression there is in room rates, but we're fairly optimistic.


  • 2014 is shaping up to be a very strong year for the convention business. These rooms we took down at the beginning of the third quarter, and they're starting to come back on line. We have about six floors left to come on line, but they'll be in about another month and a half. The whole tower will be completely renovated and ready for the 2014 year.
  • One, just based on the cycle of certain large conventions, they come every three years or every two years. They seem to have lined up so that they're going to come in 2014. A couple of the very large ones come in the first quarter. So I think what you'll see is the first quarter being exceptionally strong.


  • The market has been very challenged. For those of you in New York that visit Atlantic City, the weekends are very crowded and the midweek periods are very sparse in terms of visitation. We feel that there's an opportunity to invest in the convention business, and we're building a $125 million convention space that will have about 100,000 square feet of leasable space. The convention will be ... will be complete in approximately two years. It's under construction right now.
  • We believe our state-of-the-art facility will attract new segments of visitation to the market, particularly mid-week, which of course badly needed, and absorb excess hotel room and restaurant capacity.


  • We acquired Slotomania a few years ago. It's done tremendously well. We've continued to grow the business. We added to it Bingo Blitz last year, and that's also done very well. We now have roughly 400 employees.


  • We've also completed or entered into a number of asset sales, most importantly, the sale of our Macau golf course. That sale hasn't closed yet but we have a sizeable, non-refundable down payment. The purchaser has 90 days to close that which about 60 have gone through, so we'd anticipate that closing by the end of the month or thereabout.  


  • So for the next two years, we really only have about $125 million of maturities and then $1 billion to $2 billion in the following three years.


  • Baltimore... It will come online, as we mentioned, in the fourth quarter of next year. 


  • In Nevada, the way it works is you open it up then you market later. So the market – marketing just started this weekend. So it's been relatively modest in terms of usage, but I think it's certainly within expectation.


  • New Jersey is much more of a large potential market, given just the increased population and the wealth effect. And then in addition, in New Jersey, we can operate with both slots and tables, as well as poker.


  •  I would think that we still have the balance of the shelf out there. There's no reason to say that we would or wouldn't issue shares, but I think our overall goal is to create a more equitized company. So at some point, when the price and the ratio of certain debt securities match up, I think it would make sense to issue more, I mean, potentially do additional buybacks.


  • At the LINQ site, the Vortex, a visually-dynamic architectural element... has been erected and the facade at the front of the site is nearly complete. We plan to open the retail, dining and entertainment offerings in phases, beginning at the end of this year.
  • Our construction teams are progressing well on assembling the rim of the High Roller wheel and assembling the cabins. We plan to open the High Roller in the second quarter of 2014.


  • At the Gansevoort Las Vegas, formerly Bill's, we've completed most of the internal demolition. We plan to reopen early next year with Drai's night and day club opening in the first half of 2014. At The Quad, we recently reopened about 40% of the casino floor. We expect to reopen the rest of the casino floor in the third quarter and to complete renovations by the end of this year.

2013 CAPEX

  • Approximately $300 million is to be financed and approximately $750 million to be spent directly from the balance sheet; approximately $500 million to be allocated to project-related capital expenditures and approximately $550 million to maintenance capital expenditure. Included in the $500 million of project-related capital expenditure is approximately $300 million of project financing associated with The LINQ, Gansevoort, Baltimore, and other development projects that we have previously financed, plus approximately $200 million of our equity. Included in the $550 million of maintenance CapEx is spending on room upgrades and facilities, especially in Vegas.
  • We plan to spend approximately $945 million in CEOC and approximately $85 million in CMBS, with the remainder to be spent primarily in CEC due to the Atlantic City Meeting Facility.


  • Both [Ohio] markets have been a little softer, almost entirely on the slot side of the mix, and we've been working on measures to build the database and get more people to come and experience the quality of the properties.

[video] McCullough: Fed Threatens Markets & Economy


Takeaway: With respect to the intermediate-term TREND, we like South Korean equities on the long side and Chinese equities on the short side.

This note was originally published September 03, 2013 at 18:13 in Macro







  • At 14.8% and 15.6%, respectively, China and South Korea represent the two largest geographic weights in the iShares MSCI Emerging Markets Index Fund (EEM). More importantly, we think the latter is poised to take market share from the former, as we believe the South Korean and Chinese equity markets are poised to diverge with respect to the intermediate-term TREND.
  • All told, we think South Korean equities look increasingly attractive with respect to the intermediate-term TREND, while the attractiveness of Chinese equities on that same duration is poised to roll over after a proactively-predictable dead-cat bounce in both market prices and Chinese economic data.
  • This view is supported by our quantitative risk management setup, as the KOSPI Index is bullish TREND and the Shanghai Composite Index is bearish TREND. As an aside, we think the latter index is likely to threaten a TREND line breakout over the next few weeks on the strength of what is likely to be the last month of sequentially accelerating growth data (SEP), but ultimately fail to confirm any move north of our 2,123 TREND line.
  • From an intermediate-term TREND perspective: Chinese growth is poised to roll over in 4Q as inflation continues to accelerate from a low base; South Korean growth should continue its solid trend of acceleration as inflation accelerates from an extremely low base.
  • From a long-term TAIL perspective: Structural banking sector headwinds are likely to continue to depress Chinese economic growth; South Korea’s corporate earnings outlook is increasingly complicated by the likely resurgence of Japan Inc.


***Tomorrow (Wednesday, September 4th) at 11:30am EDT, please join the Hedgeye Macro Team for a ~15min conference call titled “Paddling Upstream?: Navigating #EmergingOutflows”. On the call, Senior Analyst Darius Dale will host a live Q&A session regarding recent developments in EM financial markets and our outlook for those asset classes and the economies that underpin them. CLICK HERE to download the accompanying 80-slide presentation, which we will allude to throughout tomorrow’s call. We look forward to your participation and fielding any follow-up questions you might have.***



At 14.8% and 15.6%, respectively, China and South Korea represent the two largest geographic weights in the iShares MSCI Emerging Markets Index Fund (EEM). More importantly, we think the latter is poised to take market share from the former, as we believe the South Korean and Chinese equity markets are poised to diverge with respect to the intermediate-term TREND.


We’ll begin our exposition of this thesis with the assumption that you’re familiar with our latest work in the context of our #EmergingOutflows and #AsianContagion themes. To the extent you are not, we encourage you to review the aforementioned 80-slide presentation; we detail our outlook for the Chinese economy on slides 6-11, 38 and 57-72; we detail our outlook for the South Korean economy on slides 6-11 and 38.


With that knowledge in hand, we think now is the time to buy dips in the Korean equity market and that we’re in a 2-4 week window of loading up on the short side of Chinese equities again, as the current dead-cat bounce has become increasingly long in the tooth.


This view is supported by our quantitative risk management setup, as the KOSPI Index is bullish TREND and the Shanghai Composite Index is bearish TREND. As an aside, we think the latter index is likely to threaten a TREND line breakout over the next few weeks on the strength of what is likely to be the last month of sequentially accelerating growth data (SEP), but ultimately fail to confirm any move north of our 2,123 TREND line.






HUNTING FOR ASIAN EQUITY ALPHA - China Iron Ore  Rebar and Coal YoY


From a GIP perspective, the South Korean economy is likely to reside in Quad #2 for the balance of the year, while the Chinese economy looks to be transitioning from Quad #2 to Quad #4 in the upcoming quarter, which is a headwind for equity market appreciation.






The aforementioned GIP forecasts are determined by our predictive tracking algorithms for each country’s respective growth and inflation statistics and, like any model, are subject to varying degrees of tracking error – though a lot less than whatever the sell-side has been using to forecast growth, inflation and policy deltas over the past 3-5 years!


As such, we must rigorously track the relevant high-frequency economic data for clues to the degree and directionality of said tracking error – to the extent there is any:




  • The respective trends in the YoY deltas of the monthly averages of rebar, iron ore and coking coal, as well as the respective trends in Manufacturing PMI, New Orders PMI, New Export Orders PMI, Real Estate Climate Index, Industrial Production, Retail sales and FDI support an improving near-term growth outlook. The respective trends in the monthly average of China’s sovereign yield spread (10Y-2Y), Backlogs of Orders PMI, Non-Manufacturing PMI, Fixed Assets Investment, Total Social Financing, Monthly New Loans, Industrial Sales, Industrial Profits, M2 Money Supply, Consumer Confidence, Exports, Imports, the Trade Balance and sovereign fiscal expenditures all suggest the current uptick in Chinese growth may be short-lived.
  • The respective trends in headline CPI, Food CPI, headline PPI, Raw Materials PPI and the trend in the YoY deltas in the currency market all support a hawkish inflation outlook.
  • The trend in OIS with respect to the benchmark rate supports a demonstrably tighter monetary policy outlook, though we’d argue much of this is due to the market’s expectation of persistent liquidity constraints (more on this below).








  • The respective trends in Non-Manufacturing BSI, Employment, Retail Sales, Consumer Confidence, Capacity Utilization, CapEx, Construction Orders, Exports and Imports all support an improving growth outlook.
  • The respective trends in headline CPI and headline PPI both support a hawkish inflation outlook, as does the trend in the YoY deltas in the currency market.
  • The trend in OIS with respect to the benchmark rate supports a marginally tighter monetary policy outlook.






In addition to tracking high-frequency economic data, we must also have a good handle on the idiosyncratic factors that may influence or dictate a country’s 1-3 year GIP outlook:




  1. Across the maturity curve, interest rate swaps continue to trade well above the current cost of capital in China. In the past, we’ve interpreted this market signal as a sign that monetary policy tightening was increasingly probable over the intermediate term. We don’t view that scenario as likely at the current juncture; rather, we believe the market sees what we see: a prolonged erosion of financial liquidity, at the margins, will continue to apply upward pressure to money market rates over the intermediate-to-long term.
  2. That erosion of financial liquidity can be further identified via recent activity in China’s local currency bond market. In the QTD, there have been 27.1B CNY ($4B) of pulled bond sales, while AUG’s 240.9B CNY of issuance is down -17% MoM. Moreover, 10Y AAA bond yields have widened +53bps QTD to a ~2Y high of 5.67% and the spread between AAA yields and Chinese sovereign yields just hit a 3M-high of 168bps wide. Lastly, China’s 10Y-2Y sovereign yield spread has widened modestly off its JUN mini-crisis spread lows, but it has yet to buck the trend of tightening that has been in place for over one year now.
  3. The mere fact that both ends of China’s sovereign debt market is selling off should be interpreted as supportive of our view that the Chinese economy will be increasingly liquidity constrained, at the margins, as NPLs – both of the reported and unreported (i.e. debt rollovers/evergreening) genres – accelerate sustainably. A dour secular outlook for “capital” flows via the trade surplus is also supportive of our liquidity constraint thesis.










  1. Just isolating its top three export markets, South Korea competes head-to-head with Japan in 41.6% of its exports, so naturally, the JPY’s -24.1% YoY decline vs. the CNY and its -21.3% YoY decline vs. the USD has weighted on the outlook for South Korean export growth. That’s a headwind for broader economic growth as exports are equivalent to 56.5% of South Korean GDP.
  2. Perhaps more importantly with respect to the thesis we are attempting to explicate, is the fact that an outlook for secular yen weakness directly calls into question the earnings outlook for KOSPI Index. Specifically, both South Korea and Japan are particularly exposed to the global CapEx cycle (Tech and Industrials) from an equity index perspective at 40.6% and 28% of total market cap, respectively (vs. a regional average of 20.2%).
  3. To the extent customers are competing on price in this naturally deflationary segment of the global economy, it can be argued that a meaningful portion of corporate profit growth in Japan (+24% YoY in 2Q vs. +6% YoY in 1Q) is likely to come at the expense of corporate profit growth in South Korea. It’s hard to be long and strong South Korean equities with respect to the long-term TAIL if you share our bearish bias on the Japanese yen (we think the USD/JPY cross can traverse its way to 125 over the next 12-18 months).


HUNTING FOR ASIAN EQUITY ALPHA - South Korea vs. Japan Export Markets 


HUNTING FOR ASIAN EQUITY ALPHA - South Korea vs. Japan Currency




All told, we think South Korean equities look increasingly attractive with respect to the intermediate-term TREND, while the attractiveness of Chinese equities on that same duration is poised to roll over after a proactively-predictable dead-cat bounce in both market prices and Chinese economic data.


We look forward to your participation on tomorrow’s flash call.


Darius Dale

Senior Analyst