THE MACAU METRO MONITOR, DECEMBER 13, 2013
LVS NO LONGER PURSUING SPAIN DEVELOPMENT, WILL CONTINUE AGGRESSIVE PURSUIT OF OPPORTUNITIES IN ASIA LVS
"We have reiterated time and again that our internal development process would dictate the outcome of a proposed development in Spain. That process has been extremely thorough and while the government and many others have worked diligently on this effort, we do not see a path in which the criteria needed to move forward with this large-scale development can be reached. As a result we will no longer be pursuing this opportunity. As chairman and CEO, my role is not only creating a vision for the company's future, it is also fulfilling it in a way that best represents the interests of our shareholders. Developing integrated resorts in Europe has been a vision of mine for years, but there is a time and place for everything and right now our focus is on encouraging Asian countries, like Japan and Korea, to dramatically enhance their tourism offering through the development of integrated resorts there."
-Sheldon Adelson, LVS CEO
PACKAGE TOURS AND HOTEL OCCUPANCY RATE FOR OCTOBER 2013 DSEC
Macau visitor arrivals in package tour totaled 716,867 in October 2013, down by 11.5% YoY. Under the influence of the new Tourism Law in Mainland China, effective in October, visitors coming from the Mainland (526,564) decreased by 10.6% YoY, with 280,110 from Guangdong Province, which was followed by Taiwan (60,414); the Republic of Korea (34,646); and Hong Kong (34,060).
The average length of stay of guests held stable as October 2012, at 1.4 nights.
LOUIS XIII CASINO FOUNDATIONS TO BE LAID BY MAY Macau Business
The developer of the Louis XIII casino in Cotai expects the foundations to be completed in April or May. Louis XIII Holdings Ltd deputy chairman Tom Lau Ko Yuen said that construction should be finished by the second quarter of 2016.
A plan was approved to raise HK$300 million (US$38.69 million) for the project by issuing convertible bonds and another HK$141.33 million by placing out shares. Lau said the developer expected to have enough capital to finish the US$1.06 billion (MOP8.47 billion) project.
CHINA'S NEW HOLIDAY PLAN Xinhua News
The major change is reducing the number of three-day holidays by "moving" weekends; that is if a holiday falls on a Wednesday, weekends will not be moved. Holidays for 2014 will be as follows:
The new plan believes will resolve the problem associated with the long consecutive work days prior and after holidays.
TODAY’S S&P 500 SET-UP – December 13, 2013
As we look at today's setup for the S&P 500, the range is 23 points or 0.25% downside to 1771 and 1.04% upside to 1794.
CREDIT/ECONOMIC MARKET LOOK:
MACRO DATA POINTS (Bloomberg Estimates):
WHAT TO WATCH:
COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)
The Hedgeye Macro Team
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This note was originally published at 8am on November 29, 2013 for Hedgeye subscribers.
“Whenever you feel like criticizing any one . . . just remember that all people in this world haven’t had the advantages you’ve had.”
-F. Scott Fitzgerald
Yesterday, I read a great column in the New York Times by Nicholas Kristof about compassion and empathy. The point of the article was to look at the distinction between asking someone to be personally accountable versus recognizing in a civil society that it is our responsibility to help others.
The origin of the article was based on some comments Kristof had received from a number of recent columns he’d written on the federal food stamps program. The gist of the feedback was that we shouldn’t be subsidizing families that are “too lazy” to take care of themselves. As Kristof writes:
“Let’s acknowledge one point made by these modern social Darwinists: It’s true that some people in poverty do suffer in part because of irresponsible behavior, from abuse of narcotics to criminality to laziness at school or jobs. But remember also that many of today’s poor are small children who have done nothing wrong.
Some 45 percent of food stamp recipients are children, for example. Do we really think that kids should go hungry if they have criminal parents?”
The current public debate over healthcare personifies this dilemma we face when trying to emphasize with those that were given less in life. (Unfortunately, the inability of the government to execute on the implementation of Obamacare has somewhat tainted this debate.)
In “A Theory of Justice” the philosopher John Rawls proposed the veil of ignorance to help us in determining our role in helping others and as a way to find morality in many situations. According to Rawls, under the veil of ignorance:
“No one knows his place in society, his class position, or social status; nor does he know his fortune in the distribution of natural assets and abilities, his intelligence and strength, and the like.”
As a result, since a person may occupy any position in society after the veil is lifted, the person must then evaluate any position from all perspectives of society.
Certainly, the idea that I could wake up one day and not be preparing for a festive thanksgiving with friends and family, but rather be a homeless person wandering the icy streets of New York provides a different perspective as to how to treat those that are less fortunate.
Back to the global macro grind...
As it relates to the U.S. equity markets, today is a day that is a bit of a market veil of ignorance as it is historically is the lowest volume trading day of the year. As a result, there probably won’t be a lot of read through from the market action today. Internationally, there has actually been a slew of data out over the last 24 hours and some key points to highlight include:
In aggregate the big macro data points this morning do not point to any reason for the policy makers in Japan or Europe to change their views. If anything, there is only increased support for the current extremely dovish policies that are in place.
As it relates to Japan, though, late last week we actually encouraged investors to consider taking off the Abenomics trade, as my colleague Darius Dale wrote there are a number of reasons to consider booking gains, namely:
In my purview the point on sentiment may be the most compelling reason to take a break on the long Japan equity trade. Specifically, in the YTD, foreigners have purchased a net ¥13-plus trillion of Japanese shares – the highest total on record. This contrasts with a net ¥6T of net sales amongst Japanese institutional investors.
Moreover, the aforementioned foreign/domestic bifurcation has intensified in recent weeks. The most recent weekly data shows a net purchase of ¥1.3T by foreign investors, which represents a 7M-high. Conversely, net sales of domestic assets by Japanese retail inventors hit ¥174B last week – the largest weekly divestment since 2008.
I think we can all agree, buying when the locals are selling is rarely a good thing!
Switching gears, in the chart of the day today we highlight a key point from our expert call last week with Dr. Tancred Lidderdale from the Energy Information Administration. As the chart shows, for the first time in more than twenty years, U.S. production of crude oil has surpassed imports. Arguably, even the environmentalists when wearing the veil of ignorance would agree that increased U.S. oil independence is a good thing.
I’ll be heading to my first Apple Cup later today, which is the annual match-up between Washington University and Washington State in Seattle. Wherever you spend the rest of the holiday weekend, I hope it is a great one.
Our immediate-term Global Macro Risk Ranges are now:
UST 10yr Yield 2.69 - 2.82%
SPX 1795 - 1814
DAX 9206 - 9345
VIX 11.91 - 13.31
USD 80.35 - 81.15
Gold 1226 - 1289
Keep your head up and stick on the ice,
Daryl G. Jones
Director of Research
Takeaway: Every single bear case - especially dot com concerns - was just blown out of the water. Fundamentals look phenomenal. Embrace the CEO trade.
Conclusion: This sell-off is a gift. The departure of Carlos Alberini is not the end of the world. The C-suite is crowded. They need a warm body in there when they start opening mega stores in 12-18 months. They've got time. Our long-term estimate is going up to $10 from $8.50. The market will do what it wants as it relates to this announcement. But we can confidently say that for long-term investors looking for the rare triple over a 3-4 year time period (not many of them out there), we'd recommend buying into the pessimism, and accepting what we thing is an early holiday gift.
This is as polarizing a quarter as we've seen from any company in a while.
Obviously, RH announcing that Carlos Alberini is moving on is not good news. There's no way we'd try to sugar coat it. But consider the following.
Now let's hit on the good news…and that's pretty much everything else.
The quarter was phenomenal. The company beat on the top line, gross margin, SG&A, and, of course, EPS.
The big stat was the RH Direct was up 47%. We only have data going back 5-years -- but we can't find a quarter where it was up remotely that high.
The key, of course, is all the noise investors made over the past two weeks about dot.com being weak because of the elimination of the Fall Sourcebook -- and weak ComScore data pointed to a precipitous dropoff in the numbers.
We looked at things a bit differently. We tracked RH.com's internet traffic ranking over the past six months -- and while everyone else thought the Direct business was falling apart, we saw RH.com's traffic rank improve by better than 35%. How can the dot.com business be losing momentum when we're seeing such strong numbers out of RH.com's traffic rank? Anyway…that's what we argued earlier this week (see our analysis below), and it proved to play out in the company's financial results.
We're not changing our estimates for store growth, comp, but we are tweaking higher our gross margin forecast. We had been assuming a relatively flat gross margin over time (steady at 36%), but now we're looking at something closer to 38%. Simply put, as product mix changes, it will move to higher margin product that turns faster. So not only do we get to a $5bn business at a 14% EBIT margin, bus also one that has an ROIC profile that goes from 12% today, to near 30% in 5-years.
The punch line is that there's nothing we can do about the pessimism surrounding Alberini's departure. But we can confidently say that for long-term investors looking for the rare triple over a 3-4 year time period (not many of them out there), we'd recommend buying into the pessimism, and accepting what we thing is an early holiday gift.
HERE'S OUR RH NOTE FROM EARLIER THIS WEEK
RH: Our Take On The Market's Bearishness
We've never seen the Street more bearish on RH -- especially headed into a print. We find that interesting, if not perplexing, given that there should be such a positive change in fundamentals with the upcoming quarter. We still think RH is on its way to $175. The quarters will ebb and flow. But despite the bearish sentiment we like it into the 3Q print.
Consider the following
Last quarter -- when RH was flirting with $80...
Package that all together, and it's easy to see why sentiment is so poor.
But here why we're more optimistic…
THIS IS THE CORRELATION BETWEEN SOURCEBOOK MAILINGS AND REVENUE -- NADA
HERE'S WHAT 1,000 PEOPLE TOLD US ABOUT WHAT WHAT THEY DO WITH CATALOGS. THEY DON'T DO MUCH.
Sentiment for RH is just about as low as it's ever been -- despite the fact that fundamentals are getting better on the margin, and we’re inching closer to the period (in 12 months) when square footage should start to accelerate.
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.
This note was originally published December 10, 2013 at 12:41 in Macro
POSITION: 5 LONGS, 5 SHORTS @Hedgeye
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:
In other words, the immediate-term risk range = 1785-1815 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.
Chief Executive Officer
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