A strong start to March with average daily table revenues (ADTR) of HK$1,206 million per day, up 16% from the comparable period last year.  Weekly ADTR should slow throughout the month.  Last year, ADTR declined 7% sequentially in each of the following weeks of March.  For the full month of March, we are projecting YoY of GGR (includes slots) growth of 13-17%, a deceleration from the combined YoY growth rate of 24% for January/February.  Underlying fundamentals remain just as strong, however, as the 1 and 2-yr comps for March are more difficult, +25% and 24%, respectively.


Market shares carry little weight this early in the month but WYNN and Galaxy are off to a great start.  





Just Charts: XLP Screens Bullish

Consumer Staples mildly underperformed the broader market last week, rising +0.7% versus the S&P500 at +1.0%. XLP is down -0.7% year-to-date.


From a quantitative set-up the sector moved to bullish immediate term TRADE and intermediate term TREND durations this week, our language for a bullish medium term sector outlook. This is a material change compared to year-to-date in which it has traded bearish TRADE and TREND.


Just Charts: XLP Screens Bullish  - chart12


We continue to believe that the sector is facing numerous headwinds, including:

  • U.S. consumption growth is slowing as inflation rises, in-line with the Macro team’s 1Q14 theme of #InflationAccelerating
  • The economies and currencies of the emerging market – once the sector’s greatest growth engine – remain weak with the prospect of higher inflation in 2014 eroding real growth
  • The sector is loaded with a premium valuation (P/E of 19.4x)
  • Less sector Yield Chasing as Fed continues its tapering program
  • The high frequency Bloomberg weekly U.S. Consumer Comfort Index has not seen any real improvement over the past 6 months, but expanded to -28.5 versus -28.6 in the prior week

Just Charts: XLP Screens Bullish  - chart11

Just Charts: XLP Screens Bullish  - chart13


There are a number of companies presenting at consumer conference this week (more below).  If you missed our Best Idea Call on Lorillard on March 4th you can click below for a replay:



Presentation: CLICK HERE


***A supplemental expert report on menthol by a top Washington, DC law firm involved in tobacco public policy is available by request***



Top 5 Week-over-Week Divergent Performances:

Positive Divergence:  LO +8.0%; BNNY +5.9%; HAIN +5.5%; RAI +5.4%; BF/B +5.1%

Negative Divergence:  NUS -8.6%; HLF -2.8%; SJM -2.5%; NWL -2.5%; AVP -1.9%



Last Week’s Research Notes


Recent News Flow


RAI & LO - last Monday, RAI was rumored to be interested in acquiring LO. The rumor sent LO’s stock soaring.  As we discussed in our Best Idea Call on Lorillard, we’re uncertain if the deal would go through given anti-trust concerns.  A combined RAI + LO would own 67% of the U.S. menthol market, and make it the second largest U.S. tobacco company, behind PM.


Over the weekend there were also rumors that BAT may buy the 58% of RAI it doesn’t already own. We think the uptick in news flow in the tobacco space is additive to our fundamental long call on LO.


BF/B – Brown Foreman reported Q3 earnings on 3/5, beating consensus estimates of $0.75 by 7 cents, and top-line met consensus at $1.08B.



Events This Week (in EST):


Wednesday (3/12)

RBC Capital Markets Consumer & Retail Conference:  ENR (8:30am); CPB (8:30am); RAI (11:30am)

Goldman Sachs Agribusiness Conference:  BG (11:30am); SAFM (1:50pm); TSN (2:50pm)

UBS Global Consumer Conference:  DPS (8:50am)

Bank of America Merrill Lynch Consumer & Retail Conference:  HAIN (11am)


Thursday (3/13)

RBC Capital Markets Consumer & Retail Conference:  TSN (8am); BNNY (9am); HAIN (10am); NWL (11am)

UBS Global Consumer Conference:  CL (8:50am)


Matt Hedrick

Food, Beverage, Tobacco, and Alcohol


Howard Penney

Household Products





Quantitative Setup

In the charts below we look at the largest companies by market cap in the Consumer Staples space from both a quantitative perspective and fundamental aspect where we can offer one.  As you will see over time, sometimes our fundamental view does not align with the quantitative setup (though not often).



BUD – trying to breakout back above its TREND line of 105.21 resistance but not getting it done – rally to lower-highs has been on weak volume signals too

Just Charts: XLP Screens Bullish  - chart1


DEO – looks a lot like BUD, but worse; bearish TREND resistance firmly intact up at 127.21

Just Charts: XLP Screens Bullish  - chart2


KO – still one of the ugliest big cap quantitative setups in America; TREND resistance remains intact up at 39.81

Just Charts: XLP Screens Bullish  - chart3


PEP – beta chase was on @Pepsi last week, but on really weak volume signals; stock would need to close > 82.29 to go bullish TREND

Just Charts: XLP Screens Bullish  - chart4


GIS – our risk management signal sniffed this one out when it signaled a bearish to bullish TREND reversal 3 weeks ago; what was TREND resistance is now support at 49.58

Just Charts: XLP Screens Bullish  - chart5


MDLZ – solid breakout confirming bullish TREND this week; stock needs to hold 34.04 for it to remain bullish TREND

Just Charts: XLP Screens Bullish  - chart6


KMB – still the best looking combined quant/research setup on this list; TREND support firmly intact down at 105.49

Just Charts: XLP Screens Bullish  - chart7


PG – almost looks as bad as KO (which is really bad); @Hedgeye TREND resistance = 81.05

Just Charts: XLP Screens Bullish  - chart8


MO – starting to improve from the thralls of bearishness in early FEB; if the stock can hold 36.39, it has a shot at going bullish TREND in our model

Just Charts: XLP Screens Bullish  - chart9


PM – does not look at all like MO; bearish TREND is pervasive for PM (resistance = 83.67)

Just Charts: XLP Screens Bullish  - chart10

Poking the Bear

Client Talking Points


Even the Chinese can’t make up numbers that are less than awful at this point. The Shanghai Composite went down -2.9% overnight to -5.5% for 2014 year-to-date. But look on the bright side: that beats Japan’s Nikkei which is down -7.1% YTD.


Simply said, Vladimir Putin’s currency and stock markets are crashing. Just look at the Russian Trading System which is down another -0.5% this morning. All told, it’s been down -24% since October and down -19.7% YTD. The writing is on the wall.


The 10-year yield of 2.79% this morning has failed to confirm a bond yield breakout above Hedgeye’s TREND (3 months or more) resistance of 2.81%. The payroll print was fun, but the 3 month TREND in payrolls is bearish and, more importantly, the forward looking NSA Jobless Claims series (rolling year-over-year) has now been on a negative slope for 8 consecutive weeks.

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

We remain bullish on the British Pound versus the US Dollar, a position supported over the intermediate term TREND by prudent management of interest rate policy from Mark Carney at the BOE (oriented towards hiking rather than cutting as conditions improve) and the Bank maintaining its existing asset purchase program (QE). UK high frequency data continues to offer evidence of emergent strength in the economy, and in many cases the data is outperforming that of its western European peers, which should provide further strength to the currency. In short, we believe a strengthening UK economy coupled with the comparative hawkishness of the BOE (vs. Yellen et al.) will further perpetuate #StrongPound over the intermediate term.


Las Vegas Sands has transformed into that rare stock that should appeal to “Growth,” “Value”, and “Dividend/Cash Flow” investors alike. The stock now yields higher than the S&P 500 (43% sequential quarterly dividend increase), and the company is buying back $200 million + in stock a quarter, yet still retains a pristine balance sheet. The significant capital deployment opportunities can be funded out of annual free cash flow of nearly $4 billion. Management has indicated they are willing to raise leverage 1.5x which would still keep them well below industry average and if directed toward dividends, would result in a yield of over 6%. And we haven’t gotten to the $10-14 billion in mall assets that could be monetized. We know of no other stocks in consumer land that provide this combination of cash flow, growth, cash return to shareholders, and value levers.


Darden is the world’s largest full service restaurant company. The company operates +2000 restaurants in the U.S. and Canada, including Olive Garden, Red Lobster, LongHorn and Capital Grille. Management has been under a firestorm of criticism for poor performance. Hedgeye's Howard Penney has been at the forefront of this activist movement since early 2013, when he first identified the potential for unleashing significant value creation for Darden shareholders. Less than a year later, it looks like Penney’s plan is coming to fruition. Penney (who thinks DRI is grossly mismanaged and in need of a major overhaul) believes activists will drive material change at Darden. This would obviously be extremely bullish for shareholders and could happen fairly soon driving shares materially higher.

Three for the Road


CRB Commodities Index +9.6% YTD vs Dow -0.7% as inflation slows US consumption growth @KeithMcCullough


"The most beautiful thing we can experience is the mysterious.” -Albert Einstein


The amount of global debt has soared over 40% to $100 trillion since the first signs of the financial crisis as governments borrowed to pull their economies out of recession and companies took advantage of record low interest rates. The $30 trillion increase from $70 trillion between mid-2007 and mid-2013 compares with a $3.86 trillion decline in the value of equities to $53.8 trillion, according to the Bank for International Settlements and data compiled by Bloomberg. (Bloomberg)

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  • CZR 4Q 2013 conference call:  5 pm
  • STN 4Q 2013 conference call:  4:30 pm  

Monday-Thursday, March 10-13

  • 2014 Cruise Shipping Miami Conference

Tuesday, March 12

  • MTN FY2Q 2014 conference call:  4:30 pm

Friday, March 14

  • Hyatt Investor Day


CZR – a Las Vegas Review Journal story over the weekend was skeptical of CZR’s recently announced strategic asset sales to Caesars Growth Partners and called attention to Caesars Entertainment Corp’s $3.06 billion of maturing debt in 2015 and 2016


Takeaway:  We too were perplexed by the recent announcement...seems like a three card monte car


HOT – announced Sheraton will open 35 hotels during next 12 months with a focus on China and Southwest Asia.

Takeaway:  A little better than we thought. Hopefully, China doesn't blow up.



Number of cruise passengers in Spain +41% YoY in Jan Hosteltur 

According to the monthly report of state ports, Spanish ports in January received a total of 454,040 cruise passengers, representing +41% YoY.  The number of cruise ships that passed were 208, an increase of 21.6% YoY. 


Takeaway:  Positive data point in a market that has struggled the past several years

Massachusetts Update – The Commission will take up the decision of MGM by May 30 if the sole remaining applicant in Western Mass. — MGM Grand — is worthy of a license in Springfield.   The commission will then decide whether the Greater Boston casino license will be issued for Everett or Revere – pitting Steve Wynn against Suffolk Downs.  A decision is expected by June 30.


Takeaway:  Winner's Curse? PENN looks like the highest ROI in MA



Chinese February data

  • Chinese new yuan loans CNY 644.5 bn vs Reuters estimate CNY716 bn
  • Total social financing CNY 958 bn vs CNY 2.58 tn in January

Takeaway:  Macro data from China remains disappointing.  The stock market is at the its lowest point since 2009.


Hedgeye remains negative on consumer spending and believes in more inflation.  Following  a great call on rising housing prices, the Hedgeye Macro/Financials team is turning decidedly less positive. 


Takeaway:  We’ve found housing prices to be the single most significant factor in driving gaming revenues over the past 20 years in virtually all gaming markets across the US.


Golden Defense

This note was originally published at 8am on February 24, 2014 for Hedgeye subscribers.

“All men can see the tactics whereby I conquer, but what none can see is the strategy out of which victory is evolved.”

-Sun Tzu


That’s most likely a familiar quote to any winner in this world – and it should be. Author John Hamm uses it effectively in his intro to chapter 5 of Unusually Excellent (pg 103) in order to link leadership to processes and plans.


As we like to say here @Hedgeye in terms of positioning for new Global Macro Themes, the plan is that the plan is going to change. That’s because real-time prices and market signals do. Our risk management process doesn’t change so much.


Neither did Team Canada’s in this weekend’s Gold medal hockey win at the Olympics. Sure, offense might win shootouts, but defense wins championships. En route to their second consecutive Olympic win, Team Canada shut out both USA and Sweden. It’s really hard to lose if you don’t get scored on (Canada allowed only 3 goals in 6 tournament games). #GoldenDefense


Golden Defense - 44


Back to the Global Macro Grind


Backcheck, Forecheck, Paycheck. That’s another saying meat-head hockey players like me use when we think about grinding out wins. Note that back-checking comes first. Defense always does.


There are obvious ways to apply this mentality to your risk management strategy. In a US stock market that literally went straight up last year, if all you did was not lose money on the short side, you probably won the season for your investors.


Sure, doing crazy stuff (like trading) may look like “short-term” tactics (primarily because they are) but don’t confuse my tactical back-checking  with a lack of a longer-term strategy to win championships.


What is your long-term strategy?


Mine is don’t lose money. That’s why how you did in 2000, 2001, 2002, 2008 and 2011 matters.  That’s also why most of our Global Macro Themes incorporate what to stay clear of (on both the long and short side) if a big macro theme starts to trend.



  1. During #GrowthAccelerating – don’t short high-short interest, high beta, growth stocks that can beat expectations
  2. During #InflationAccelerating – don’t short commodities, breakevens, etc.
  3. During #InflationAccelerating + #GrowthSlowing – don’t short bonds, utilities, or Gold

If you aren’t in the business of shorting things, substitute the word “short” with SELL! Obviously, the other side of “don’t sell” is buy or hold. And I think anyone who has bought and held commodities for the last 3 months is winning YTD too.


Update on our non-consensus 2014 call for #InflationAccelerating:

  1. US Dollar Index is down again this morning and -1.4% in the last 3 months
  2. CRB Commodities Index was up another +2.8% last week and up again this morning to +7.8% YTD
  3. US Consumer Prices (CPI) hit a 4-month headline high of +1.6% year-over-year last week (JAN report)

I know. I know. The government says there’s no inflation, and since they’ve neutered the inflation report so that the headline number can rarely remain above 4% (or below 1%) for long, academics can argue amongst themselves on that.


Reality is that market expectations trade on the rate of change for both GROWTH and INFLATION expectations. And currently the rate of change on both makes our macro call a very easy one to make:

  1. INFLATION: up from its 3yr low of +0.9% y/y CPI in OCT 2013, CPI is going towards 2%, fast, in February
  2. GROWTH: down from its Q313 sequential peak of +4.12% GDP, you’ll probably see a 2% handle in Friday’s GDP report

So, irrespective of your views on how to play Macro Defense, what if?

  1. Inflation doubles (from 1% to 2%)
  2. Growth gets cut in half (from 4% to 2%)

Market #history fans will recall that when inflation slows growth, stock markets get MULTIPLE COMPRESSION. In other words, with the SP500 trading at 16x this year’s #OldWall projection for “earnings”, all you need is 2 points of multiple compression to get you 1638 (14x) at some point this summer. If the “earnings” (and multiple on them) start to fall, it’ll get gnarly out there, faster.


And while I am sure that the “weather will turn” and that some American consumers are dumb enough to go lever themselves up with a few more houses to flip, that doesn’t change the fact that inflation will A) slow real-consumption-growth and B) have a big impact on reported US GDP via a rising “deflator” (note: the deflator, which is subtracted from GDP, hit a 50yr low last yr and is rising).


With Natural Gas (+17.7% last wk to +46.3% YTD) and Coffee price (+19.1% last wk to +50.1% YTD) #InflationAccelerating to 52-week highs last wk, #GrowthSlowing has both Utilities (XLU) and Gold +7% and +11% YTD, respectively. So don’t be short those. Buying and holding them for the last 3 months has been a #GoldenDefense. Being long the American consumer, not so much.


Our immediate-term Macro Risk Ranges are now as follows:


UST 10yr Yield 2.66-2.78%
SPX 1803-1848

VIX 13.44-16.69
USD 79.81-80.41

Brent Oil 108.54-110.69  

Gold 1306-1340


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


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