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





  • We're very much focused on one segment, the premium mass, whereby most of our competitors they have (been focusing) between portfolios (of segments)...Non-gaming improvement, really, really help us to improve our length of stay for those customers.


  • Studio City, our unique cinematically themed integrated resort remains on budget and on track to open in mid-2015.


  • The development of our Philippines project is also moving forward as anticipated with the opening date remaining unchanged at around the middle of 2014.


  • We anticipate starting construction on a fifth tower at City of Dreams before the end of 2013. This iconic development will provide another powerful lever to drive our premium mass business and expand our high-end patronage at City of Dreams, in turn enhancing property-wide return on invested capital.


  • Total depreciation and amortization expense is expected to be approximately $95MM to $100MM. Corporate expense is expected to come in at $20MM to $22MM, and consolidated net interest expense is expected to be approximately $38MM to $40MM, which includes finance lease interest of $11MM relating to the Philippines development and approximately $10MM of interest expense associated with Studio City. This takes into account approximately $8MM of capitalized interest related primarily to Studio City.


  • I think the board is committed to look at a regular dividend policy because unlike some of our competitors, I think our board and the management team would prefer if we had stuck to one dividend policy. So we don't want to kind of make the decision like hastily. So anyways, it's going to be some time at the end of this year, early next year that we're going to sit down to discuss.

What's New Today in Retail (11/4)

Takeaway: WMT kicks off the holiday price wars, BBY conquesrs showrooming?, new leadership at Sebago & Stride Rite, TCS doubles, DLTR files IPO



KORS - Earnings Call: Tuesday 11/5 8:00 am

CVS - Earnings Call: Tuesday 11/5 8:30 am




WMT - Walmart kicks off online holiday deals early



  • "Walmart on Friday kicked off its online holiday deals, a month earlier than usual, and announced that it is offering free shipping on about 99% of its online items this year for orders over $50. (Last year, only about 15% of its assortment qualified for free shipping)."
  • "The chain’s online sales event on November 1 features some 300 early-bird specials and includes items from JVC 42-inch LED televisions for $299 to Xelio 10.1-inch tablets for $49. According to the retailer, those are's lowest prices in those categories."


Takeaway: WMT and JCP are going to emerge as the two most heavily promotional retailers this holiday. The difference with JCP is that it can discount product heavily and still print a big margin improvement versus a disastrous 2012.


M - The World of Oscar de la Renta Comes to Bloomingdale's



  • "The 'world of Oscar de la Renta' is located at 772 Madison Avenue, the designer’s flagship. Now a version of the breadth of offerings can be found in a new leased department at Bloomingdale’s 59th Street flagship."
  • "The 1,000-square-foot space, which bowed Friday, is de la Renta’s first leased department in the U.S. and marks the first time in more than 20 years that the designer’s ready-to-wear is available at Bloomingdale’s."


What's New Today in Retail (11/4) - chart3 11 4


Takeaway: The fact that de la Renta is moving into Bloomie's is hardly notable, but the fact that it is a leased space definitely is.  We're a fan of this model for M (which it does to a large extent in Bloomingdale's). It leaves upside on the table, but it guarantees no downside. And let's face it, there's rarely much upside anyway.


WWW - Wolverine Appoints New VP and General Manager of Sebago 



  • "Wolverine Worldwide  announced the appointment of Frank Annunziata to the position of vice president and General Manager of Sebago with responsibility for the further development of the brand's global growth platform of footwear, apparel and accessories. Annunziata most recently served as senior vice president – sales for the Clarks Footwear Company."


Takeaway: Sebago is a brand we almost never hear about, but it has a strong competitive positioning in its category. And with the addition of Sperry to the portfolio, it allows the WWW sales force and distribution network to sell complimentary brands into each other's customer base.


 WWW - Wolverine Worldwide Names Ira P. Hernowitz President Of Stride Rite Children's Group


  • "Wolverine Worldwide today announced the appointment of Ira P. Hernowitz as President of the Stride Rite Children's Group." 
  • "He most recently served as Executive Vice President of "R" Us Brands for Toys R Us, Inc." 


Takeaway: This is the second executive appointment in two days for WWW’s brands – that’s not unusual. But what is unusual is that both executives are external hires. While the talent pool is certainly greater outside of WWW’s walls, we’re not crazy about what this tells the broader employee base about where it is looking to source its talent.

BBY - Fear of 'Showrooming' Fades



  • "'A year ago, people said that showrooming would kill Best Buy,' Mr. Joly said in an interview. 'I think that Best Buy has killed showrooming.'"
  • "Best Buy last year estimated that one in five of the nearly 600 million people who visited its stores did so with the intention of making the purchase online, though a spokesman for the company said its price-matching pledge has likely changed that math since then."
  • "Promoting Best Buy as a showroom comes after the chain put in place a permanent price-matching plan to prevent online rivals from undercutting its prices. Analysts estimate that less than 10% of shoppers take advantage of Best Buy's price-match offer, but executives have said the pledge is enough to keep the company from losing customers to sticker shock."


Takeaway: Sounds like BBY is declaring victory before the battle has even begun. Perhaps what they're saying is that they overestimated the showrooming threat initially. But make no mistake, this is a huge problem that they'll have to face for a long time.


TCS - Container Store Cleans Up After IPO Party



  • "In the company’s first day trading on public markets this morning, its share price has already doubled. Container Store packaged its IPO late yesterday, selling 12.5 million shares for $18 each, the high-end of its expected range. The deal valued the retailer at $828 million, slightly more than its $707 million in sales last year."


Takeaway: While banker's always want strong demand for an IPO, this one is just embarrassing. We'd love to have heard how they explained to the company that its underestimation of interest by investors cost them 100%. In the meantime, investors were the big winners -- at least those who managed to get some stock.


BBG - Billabong Sells West 49 Chain to YM



  • "...Australian surfwear manufacturer Billabong International Ltd said Monday that it has sold its Canadian retail chain West 49 to Toronto-based YM Inc for approximately 9 to 11 million Canadian dollars, or $8.63 to 11 million at current exchange."
  • "Billabong said it has also signed an approximately 34 million Canadian dollar ($33 million) non-exclusive wholesale supply agreement with YM for the next two years. Billabong will retain six Billabong stores and two Element stores in Canada."
  • "Billabong also said that it has already received $300 million of the $360 million loan Centerbridge Partners and Oaktree Capital Management are giving the Australian company. Billabong said it used the funds to repay the $294 million bridge loan it owes the Altamont Consortium."


Takeaway: Good strategy to buy an asset from a company whose equity has been cut by 99% over two years.


KORS - Michael Kors' Huge 'Likes' Tally Provides Flipside to Rocky Instagram Ads Debut



  • "With Michael Kors taking the front-line lead as the first paid advertiser ever on the social-photos platform, Adweek earlier reported that the shrapnel was considerable as Instagram users were firing nasty complaints at the brand."
  • "That still appears to be the case, although it's probably slowed down as people around the nation begin to attend to their weekend plans. Still, over the last few hours, conversely, Michael Kors' "likes" for the ad have exploded, exceeding 150,000 at press time."
  • "Based on our editorial team's research, the retailer's "likes" high in recent weeks on the platform was 85,000, while averaging about 50,000 per post. So while whatever Michael Kors is paying the Facebook-owned app for the engagement, the fashion marketer looks to be getting all kinds of bang for its buck." 
  • "...coming soon are promos from adidas, Ben & Jerry's, Burberry, General Electric, Levi's, Lexus, Macy's, PayPal and Starwood."


What's New Today in Retail (11/4) - chart1 11 4


VERSACE - Versace family stake goes to beauty parade



  • "The Versace family has…[invited] private equity investors to make a second round of competitive bids at the end of this month."
  • "The bidders for 20 to 30 per cent of Versace include former Gucci owner Investcorp, the Bahrain-based investment firm, as well as fund manager Blackstone and London-based Permira, the private equity group that owns Hugo Boss and sold Valentino last year, people with knowledge of the talks said. They also include the Italian strategic fund FSI and Paris-based group Ardian."
  • "Offers for what is one of the last independent Italian luxury brands were expected to exceed €850m, or more than 12 times the level of earnings before interest, tax, depreciation and amortization."


Takeaway: 12x EBITDA actually isn't that big of a multiple for a brand with the allure of Versace.


DTLR - Retailer DTLR Holding (DTLR) Files for $75M IPO



  • "DTLR Holding, Inc. filed a registration with the U.S. Securities and Exchange commission for an Initial Public Offering of its Common Stock. The proposed maximum offering price is $75 million. The company plans to list on the Nasdaq Global Market under the ticker, DTLR."
  • "Brief financial summary from the company: We have grown our store base from 68 at the end of fiscal 2009 to 95 stores currently. Our comparable store sales increased 4.3%, 7.3%, and 3.9% in fiscal 2010, fiscal 2011 and fiscal 2012, respectively. Our net sales increased from $135.0 million in fiscal 2009 to $181.5 million in fiscal 2012, representing a compound annual growth rate of 10.4%. Over the same period, our operating income increased from $7.5 million to $13.4 million, representing a compound annual growth rate of 21.4%."
  • "DTLR Holding is retailer of street-inspired footwear, apparel and accessories."


What's New Today in Retail (11/4) - chart4 11 4


Takeaway: One of the smaller IPOs in recent memory. Primary concept is Down Town Locker Room (, which sells to urban youth. Products include Timberland, Reebok and Nike (in that order). For an urban retailer, there's a surprising lack of Air Force 1s and Jordan's.


ODP, OMX - Office Depot Merger With OfficeMax Wins U.S. Approval



  • "Office Depot Inc.’s purchase of OfficeMax Inc. won approval from U.S. antitrust regulators, clearing the way for the office-supply companies to create a single retailer to compete with Staples Inc."
  • "The U.S. Federal Trade Commission voted to close its seven-month investigation into the merger, saying online retailing ensured competition in the retail market for office supplies, according to a statement today."


Takeaway: Perhaps with the exception of SHLD/KMRT, this might go down as the most defensive merger in retail history (we'd probably throw FD/May in there as well).




Global Retail Trends Show China Leading the Charge in Online, Mobile Shopping



  • "Shoppers across the globe are increasingly comfortable purchasing through multiple channels, ranging from in-store to online or through a mobile device. IBM's annual survey of 26,000 consumers from 14 countries shows that shoppers in developing economies are beginning to favor the convenience and personalization provided by online and mobile shopping sites."
  • "Chinese consumers, in particular, are showing a much higher inclination to shop online than their global counterparts. According to the survey, 31 percent of shoppers in China said that they made their last purchase online, compared to 14 percent worldwide."


Best of Kids': Holiday Hit List



  • "As part of Footwear News’ comprehensive look at the children’s market, retailers across the country shared their predictions for the items that will fly off the shelves this holiday season, from party shoes to must-have gifts."


  • Florsheim Kennett oxford 
  • Primigi Ginni ballet flat
  • Hunter rainboots


  • Naturino chukka boot
  • Nina Kids Patches boot
  • Toms crib shoes 

HAWLEY LANE, Shelton, Conn.

  • Merrell Jungle Moc
  • Sam Edelman Fiona ballet flat 
  • Stride Rite Disney shoes


  • Kenneth Cole Reaction Driving Dime loafer
  • Geox Piuma Ballerina
  • Minnetonka moc slippers


U.S., EU Trade Talks Said 'Back on Track'



  • "U.S.Trade Representative Michael Froman said Friday the transatlantic trade talks between the U.S. and European Union are “back on track” after the U.S. government shutdown stalled the negotiations and a widening imbroglio over reported U.S. spying on European political leaders raised questions about the deal’s prospects."


Dress Import Units Up, Dollars Down So Far This Year



  • "After increasing 7% in 2012, total U.S. dress imports have declined by 1.9% so far in 2013."
  • "Import data from the Office of Textiles and Apparel, or OTEXA, show that in the first eight months of 2013, imports of dresses dropped 1.9%, to a total value of $3.3 billion. Total units rose .6% to 455 million, causing the average cost per unit to drop 2.5% to $7.33."
  • "China is by far the largest sources of U.S. dress imports, with over half the total dollar volume. So far this year, however, China has lost share of the dress market, primarily to Vietnam. Other rapidly growing trading partners in dresses are Cambodia, whose dresses are also the cheapest, and Italy, the most expensive. Dress imports from India have fallen by almost 14% so far this year."


What's New Today in Retail (11/4) - chart2 11 4




Buying Gold? Yes.

Client Talking Points


What’s bad for the Buck and US Rates is good for the Europeans. Both the Euro and Pound bounced right where they should have this morning ($1.34 and $1.58 TREND supports, respectively) on another round of rock solid European growth data for October. UK Construction PMI moved up to an impressive 59.4 October, a new cycle high.


I bought Gold for the first time in a year on Friday. The immediate-term TRADE correlation between the US Dollar and Gold is -0.78, so I shorted the Dollar for the first time in over a year too. Shame on Ben Bernanke’s no tapering policy. It should slow growth back to 2% from 2.5% first, then we can decide from there (on the margin that matters).


If A) US GDP growth slows on Thursday and B) the European Central Bank doesn’t give into these ridiculous “rate cut” talks on Thursday, I think USD Down, Rates Down (or I wouldn’t have bought Gold and Treasuries on Friday). There's no support for 10-year yield to 2.55%, then 2.27% below that. Keep your head up out there.

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

In line with our #EuroBulls Q4 theme, we’re long the German DAX via the etf EWG. With European fundamentals showing improvement off low levels, we expect outperformance from Germany, and in turn for the region’s largest economy to pull the rest of the region higher. ECB policy remains highly accommodative and prepared to aid any of its sovereign members to preserve the Union. Inflation remains moderate and fundamentals are positive: confidence readings and PMIs are up since June, with factory orders trending higher and retail sales inflecting to push the trade balance higher. Finally, the unemployment rate has held steady at the low level of 6.9%, all of which signals to us that Germany’s economic climate is ramping up.


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.


Financials sector senior analyst Jonathan Casteleyn continues to carry T. Rowe Price as his highest-conviction long call, based on the long-range reallocation out of bonds with investors continuing to move into stocks.  T Rowe is one of the fastest growing equity asset managers and has consistently had the best performing stock funds over the past ten years.

Three for the Road


FX: Euro and Pound bounced right where they should have (off @Hedgeye TREND supports vs USD) @KeithMcCullough


“You have enemies? Good. That means you've stood up for something, sometime in your life” -Winston Churchill


Hyperinflation (Currency Burning) Watch: Venezuelan stocks up +23.9% week-over-week to +454% year-to-date.

Attention Students...

Get The Macro Show and the Early Look now for only $29.95/month – a savings of 57% – with the Hedgeye Student Discount! In addition to those daily macro insights, you'll receive exclusive content tailor-made to augment what you learn in the classroom. Must be a current college or university student to qualify.


Takeaway: Below we rank our top read notes from October. Click the note title for access.


  1. 10/15/13 – DRI: A Generational Opportunity
  2. 10/03/13 – Potbelly (PBPB): The Latest Restaurant IPO
  3. 10/14/13 – Casual Dining Weakness Persists
  4. 10/15/13 – CAKE: The Party Is Over, For Now
  5. 10/21/13 – PNRA: Stage 1 Denial
  6. 10/25/13 – MCD: McDonald’s Obsession With Starbucks
  7. 10/2/13 – MCD: Mighty Disaster Part II
  8. 10/23/13 – PNRA: The Pace Of Change?
  9. 10/21/13 – MCD: Entering Stage 1 Panic?
  10. 10/18/13 – Dismantling Darden: Hedgeye vs. Barington

Feel free to contact us if you have any questions, or would like to discuss any of our work in more detail.




Howard Penney

Managing Director


Gold's Silver Lining

“The silver of Potosi helped to destroy Spain.”

-Jack Weatherford


I bought Gold for the first time in over a year on Friday. Gold’s perverse, but modern, silver lining is what it’s always been – an un-elected body of central planners (the US Federal Reserve) having the unlimited and un-checked power to interrupt this thing called gravity (also known as the economic cycle) via A) currency devaluation and B) rate repression.


Down Dollar, Down Rates = Gold Up. And the precise opposite of that has been occurring for the better part of a year now (so we were shorting Gold on all bounces because expectations of getting the Fed out of the way (tapering) was perpetuating the always progressive two-stroke engine of US #GrowthAccelerating: #StrongDollar + #Rates Rising.


Like the fall of the hoped-to-be “New Spanish World Empire” of the 16th century, most government expectations tend to fall on Shakespeare’s sword of un-planned heartache. “Spain, the greatest beneficiary of the Potosi silver soon bankrupted itself. By 1700, Spain was reduced to a minor power of neither economic nor political importance.” (Indian Givers, pg 25)


Back to the Global Macro Grind


“Potosi was the first city of capitalism, for it supplied the primary ingredient of capitalism – money.” –Jack Weatherford


You won’t read that every day. And you won’t see me take my asset allocation off of 0% to both Commodities and Fixed Income every day either:

  1. COMMODITIES: 0% asset allocation for 165 days
  2. FIXED INCOME: 0% asset allocation for 100 days

Many did and did not agree with my risk managed decision to not lose money in each of those major investing styles. That’s why there are many different YTD performance numbers for Global Macro hedge funds in 2013. Not losing money in Gold was a choice.


Today, drum roll, I’m going to get all wild and crazy and take up my asset allocations to COMMODITIES and FIXED to 6% each:

  1. Cash = 34%
  2. Foreign Currency = 26% (or 79% of my max to an asset class)
  3. International Equities = 21% (2/3 of my max)
  4. US Equities = 6% (21% of my max)
  5. Commodities = 6% (21% of my max)
  6. Fixed Income = 6% (21% of my max)

“Of my max” means % of the max allocation I’d ever make to any asset class as a % of my total capital (which is 33%)


Why 33%? Why 60/40 equity/fixed %’s? Why have a rules based system that locks you into losing money for the sake of being “diversified” in a nice little pie chart that got blasted in June of 2013 when Gold and Fixed Income allocations were going haywire?


My Mom taught me to think for myself. My Dad taught me to not eat yellow snow. And when I wrote my senior thesis at Yale about Buffett, he taught me Rule #1 about investing – “don’t lose money.”


Despite all my faults as an investor, that’s the one thing I have somehow figured out since going to the buy-side at a hedge fund at the end of the internet bubble in the year 2000  - don’t lose money.


The other thing we’re better than bad at here @Hedgeye is risk managing the direction of the US Dollar (35 for 39 all-time on long/short USD position timestamps = +89.7% batting avg). And to get Gold right, you need to get the US Dollar right.


Currently, on our immediate-term TRADE duration, the US Dollar has an inverse correlation to Gold of -0.78. In other words:

  1. If US Dollar Index fails at intermediate-term TREND resistance of $80.98
  2. And Gold can hang in here and make another higher-low of 2013

Then I think I’ll have made the right move from an immediate-term TRADE perspective.


Another lesson I have learned the hard way in this business is to keep a TRADE a trade. That said, all great investments start somewhere and buying Gold on the first signal is what it is. For being long Gold to be an investment TREND, I need two things:

  1. Gold to breakout of this bombed out base > $1342/oz (it’s still crashing at -22.1% YTD)
  2. US 10yr Bond Yield to remain below this newly established TREND line of 2.63% resistance

I still think the odds of Bernanke and Yellen having my back on this at the December meeting are high (no tapering). Therefore I think the odds of this mini-cycle high of 2.5% US GDP being an intermediate-term top are heightening as well.


Again, to review what our GIP (Growth, Inflation, Policy) model is currently signaling:

  1. #StrongDollar + #RatesRising = US GDP accelerating to 2.5-3%
  2. Devalued Dollar + #RatesFalling = US GDP #GrowthSlowing back to 2%, then 1-1.5%

So, if you want the USA to become like Spain in 1700, beg for more Bernanke, Down Dollar, and Rate Repression. It’s a really cool and coy thing to do, provided that you don’t explain it to anyone that this is really why you want to be long Gold’s Silver Lining.


Our immediate-term Risk Ranges are now as follows:


UST 10yr Yield 2.55-2.63%


USD 80.13-80.98

Euro 1.34-1.36

Pound 1.58-1.60

Gold 1311-1341


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Gold's Silver Lining - Chart of the Day


Gold's Silver Lining - Virtual Portfolio

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