From Chicago to France: E-Cig Regulatory Winds Are Blowing

As we inch ever closer into year-end, there remains an industry wide expectation that the FDA is set to announce regulatory restrictions on electronic cigarettes. The exact timing? It’s anyone’s guess.


We believe the industry is bracing for regulation that could include:  


1) A ban of online commerce

2) Age verification standards at retail

3) Flavor limitations (beyond tobacco and menthol)

4) Health/safety certifications

5) Labeling and marketing requirements


(For a more comprehensive overview of the industry and regulation please see our recent report: “E-Cigs at the Thanksgiving Table”)


As the inevitable FDA announcement draws near, we want to highlight some notable, recent regulatory winds blowing against e-cigs in Chicago and New York City, as well as in France. While we continue to maintain a very bullish outlook overall on e-cigs, especially with Big Tobacco’s participation in the category, these regulatory initiatives, if legally enacted, would represent headwinds to the category.


Chicago and NYC

  • In late November, Chicago’s City Council held preliminary meetings to consider regulating e-cigs as traditional tobacco, and include them under the Indoor Clean Air Act. This could include such measures as increasing the age of purchase to 21 from 18, moving them to the back counter at retail, as well as banning use in parks, restaurants and bars.
  • Last week, the NYC City Council held similar meetings to those held in Chicago. That said, NYC has already voted to raise the age to buy traditional tobacco and e-cigs to 21 from 18, and raise the minimum price per pack of traditional cigs to $10.50 (set to take effect in APR/MAY 2014).
  • Both Chicago and New York are expected to put their respective measures to final votes this month. If passed, they would go into effect sometime in January of next year.
  • Currently, New Jersey, North Dakota, Utah and Arkansas and have “lumped in” e-cig products in with tobacco under their indoor smoking bans. Meanwhile, Minnesota has changed its definition of tobacco products to include e-cigs and subjected them to tobacco-like taxes.


  • A French court in Toulouse ruled yesterday that tobacconists should have exclusive rights to sell e-cigs; France's 27,000 tobacconists already have a monopoly on selling traditional cigs in the country.
  • If legislation were to follow the court’s reasoning, it would force e-cig stores to close.
  • Right now, there are an estimated 300 shops selling e-cigarettes in France.
  • E-cig sales in France are expected to more than double to around 100MM EUR this year.
  • France's Health Minister Marisol Touraine is on record saying she wants to ban e-cigs from public spaces and ban advertising on them.

Stateside, depending on the eventual FDA ruling on e-cigs (on the Federal level), we could very well see a number of states being called to action to define and/or redefine e-cigs and tax rules around them. 


Bottom line: Despite increasing regulatory headwinds in the U.S and abroad, we remain very bullish on e-cigs.



Matthew Hedrick


[podcast] McCullough: Keep Moving Out There

Hedgeye CEO Keith McCullough discusses his latest take on the market and says it doesn't matter whether you think the Fed should have tapered in September. That ship has sailed. What matters is what decisions you make next.


Extended (Again): SP500 Levels, Refreshed

Takeaway: There’s mean reversion risk down to 1734 TREND (-4.1% downside) versus +0.4% upside from the all-time closing high of 1808.



During the 5-day correction in the SP500 (which ended Thursday) I went to 11 LONGS, 3 SHORTS. So all I am doing here is aggressively managing the immediate-term risk of this market’s range. #GetActive remains one of our Top 3 Global Macro Themes for Q413.


Unconventional markets call for unconventionally active risk management.


Across our core risk management durations, here are the levels that matter to me most:


  1. Immediate-term TRADE overbought = 1815
  2. Immediate-term TRADE support = 1785
  3. Intermediate-term TREND support = 1734


In other words, the immediate-term risk range = 1 and, from an intermediate-term TREND perspective, there’s mean reversion risk down to 1734 TREND (-4.1% downside) versus +0.4% upside from the all-time closing high of 1808.


The less I try to over-think this, the better. The math works more than it doesn’t.



Keith McCullough

Chief Executive Officer


Extended (Again): SP500 Levels, Refreshed - SPX

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Household Debt & Net Wealth: Streak Ends at 18

Summary:  Adjusted Household Net Wealth is just south of peak 2007 levels, Household Debt-to-GDP continues to decline and aggregate household credit growth went positive for the 1st quarter in 18 alongside sequential increases in both consumer and mortgage debt.   A summary review of household debt & balance sheet trends from the latest, 3Q13 Flow of Funds report from the Federal Reserve below.   



Household Net Wealth:  Household net wealth is +13.6% above the prior 2007 peak on a nominal basis, +2.7% on a inflation adjusted basis, and -1.5%  when adjusted for both inflation and the number of households.  Reported net wealth should continue to advance alongside ongoing home price growth and higher equity market highs. 


Putting aside the disproportionate benefit and wealth equality implications stemming from financial asset price inflation, asset/collateral inflation and a strengthening in the aggregated household balance sheet should continue to drive some measure of wealth effect spending and support capacity for incremental credit (more below).


Household Debt & Net Wealth:  Streak Ends at 18 - US Household Balance Sheet 3Q13


Household Debt-to-GDP:  Household Debt/GDP continues to fall as GDP grows at a positive spread to nominal debt.  At 77.5%, we’re currently 18.1% off peak 2009 Debt/GDP levels and have nearly retraced back to (1) trend although there still exists meaningful downside to longer-term averages.   


Household Debt & Net Wealth:  Streak Ends at 18 - Household Debt to GDP


Household Debt vs. Consumption:  Pre-Crisis

After moving largely in lockstep for five decades, household debt growth went exponential in 2000, decoupling from consumption growth which kept tightly along the path of a second order polynomial – which is just a mathy way to say debt growth exploded but with diminishing marginal impact on consumption growth (ie. every dollar increase in debt produced increasingly less than a dollar of consumption growth).


This debt-consumption interplay is a  typical antecedent of financial crises whereby incremental debt is used to speculatively acquire already overpriced (financial) assets instead of going towards entreprenurial or productive output/investment.   The red, long-term trend line in the second chart below reflects debts increasingly ineffectual ability to drive incremental consumption.   


Household Debt & Net Wealth:  Streak Ends at 18 - HH debt vs consumption


Household Debt & Net Wealth:  Streak Ends at 18 - HH debt vs consumption Chg


Household Debt Growth:  3Q13 Inflection

After 18 consecutive quarters of decline in YoY credit growth, aggregate household debt grew +1.3% in 3Q13 as consumer credit (~23% of total) accelerated to 6.3% YoY and Mortgage debt (~72% of total) accelerated to -0.8% YoY from -1.8% in 2Q13


Household Debt & Net Wealth:  Streak Ends at 18 - HH Debt QoQ   YoY


Debt Growth vs. Income Growth:  Upside in Credit

Despite its patent obviousness, that fact that debt growth in excess of income growth is unsustainable remains, perhaps, the most glaring example of willful economic blindness for developed economy consumers and bureaucrats . 


When growth in credit exceeds growth in income for 30 years and monetary policy becomes impotent as a support at the zero bound in rates, the long-term credit cycle ends with a 2008 style de-leveraging fireworks. 


As can be seen in the chart below, in the wake of the financial crisis and through to the present, income growth has advanced at a positive spread to debt growth. With debt growth turning positive in 3Q alongside continued labor market strength and broadly positive mortgage, auto, and consumer loan trends, positive credit growth is set to continue. 


The closing of the delta between income and debt growth represent the upside to credit driven consumption.


Household Debt & Net Wealth:  Streak Ends at 18 - HH Debt growth vs Income growth


Christian B. Drake





Please join us for an in-depth look at the upcoming Hilton (HLT) IPO with a conference call today at 2:00pm EST.  HLT IPO will be the largest lodging IPO and the 3rd largest IPO of the year.




  • HLT stock should trade well
    • NAV supports at least a $22/share valuation
    • High end of the offer range implies an EV/EBITDA ratio in line with the comp set
    • HLT is just one of many Blackstone portfolio companies that it will look to bring public over the next 12-24 months- including LaQuinta which is likely coming in January 2014
    • Blackstone will make a hefty profit on the IPO, so there is plenty of pie to pass around
    • Once the lock-up expires, Blackstone will be back to the secondary market with more stock - they will own ~80% of the company post IPO, so they have a lot riding on the stock trading well
    • Leveraged balance sheet but plenty of FCF generation will allow HLT to get to 3.0x-3.5x by the end of 2015 without counting on proceeds from asset sales


  • Toll Free Number:
  • Direct Dial Number:
  • Conference Code: 572198#
  • Materials: CLICK HERE


Through the first 9 days of December (actually 11/30-12/8), average daily table revenues grew only 2% from the comparable period last year to HK$947 million.  It’s still too early to garner any read from the numbers.  Our current full month GGR forecast for December growth is +10-16% growth.  In terms of market share, Wynn Macau is off to a good start while MGM and MPEL are lagging.  Market shares this early in the month mean very little but we will reiterate that we believe Wynn may be in the middle of a market share turnaround with its Mass marketing efforts (finally).  We also like LVS as share gainer over the year.  MGM and MPEL look like share losers to us.