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THE LEISURE LETTER (3/17/2014)

Takeaway: More money laundering issues in Macau

TICKERS: SJM, 1928.HK, LVS

 

 

EVENTS TO WATCH:  UPCOMING EARNINGS/CONFERENCES

Today

  • SNOW 5 p.m. earnings call            

Tuesday, March 18

  • Hedgeye Expert Call with Gaming REIT Attorney Ed Glazer at 11am please contact sales@hedgeye.com

Wednesday, March 19

  • Galaxy Entertainment:  FY 2013 annual results
  • iGaming North America 2014 thru Friday, Planet Hollywood Las Vegas

Thursday, March 20

  • None       

Friday, March 21

  • None       

 

COMPANY NEWS

SJM – The Tycoon Club high-limit gaming salon has opened in SJM Holdings Ltd’s Grand Lisboa.  The Tycoon Club, on the upper first floor of the casino, has 740 square metres of space, around 10 gaming tables and 30 slot machines.

Takeaway: Capacity constrained SJM eking out growth.

 

Sand China Ltd – The company announced non-executive director William Lau Wong will retire after its annual general meeting, scheduled for May 30, due to other business commitments.  Also, the Company said non-executive director Jeffrey Howard Schwartz will resign at the same time also because he has other business commitments. Previously, SCL announced non-executive director Irwin Siegel would retire following the May 30th meeting.

 

MGM – The newly remodeled New York-New York Brooklyn Bridge Plaza Experience has opened to the public  

 

GLPI – William J. Clifford unloaded 100,000 shares of the company’s stock on the open market in a transaction dated Tuesday, March 11th. The shares were sold at an average price of $37.42, for a total value of $3,742,000.00. Following the sale, the chief financial officer now directly owns 187,204 shares in the company, valued at approximately $7,005,174.

Takeaway:  It is interesting to see such a large insider stock sale this early in the life of this new company.  Apparently, no acquisitions are imminent.  Maybe the stock is fairly valued...

  

INDUSTRY NEWS

GAMING               

Macau – The junket business was rocked by further negative headlines when it was announced a Neptune Group shareholder was detained by Hong Kong authorities for suspicion of money laundering when he was found to have HKD 200 million in cash in his Hong Kong apartment. - (Macau Daily Times)

Takeaway:  The 3rd related story in a week along with last week’s Dept of State request as well as the Union Pay Card story. 

 

Macau – Joseph Lau, the billionaire chairman of real estate developer Chinese Estates Holdings of Hong Kong, was found guilty by a Macau court on Friday of corruption and money laundering in connection with the payment of a HK$20 million, or $2.6 million, to former Macau public works chief Ao Man-long in a money-for-land deal.

Takeaway:  Guilty verdict was expected

 

Revel – 75-80 Casino employees delivered a petition to the property’s management office, announcing their desire to form a union. 

Takeaway: Not sure the property can handle a higher cost structure

 

MACRO

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.


Detached From Reality

This note was originally published at 8am on March 03, 2014 for Hedgeye subscribers.

“They have a detached-from-reality, academic, floating abstraction form of intelligence.”

-John Allison

 

While I was flying to LA last night (during the Oscars, because that’s how I roll), that is not a quote about Hollywood. That’s what the former CEO of one of the best banks in American #history said about the Fed’s finest.

 

That free markets would make better price decisions than elitist central planners (members of the Federal Reserve) should not be a surprise. Ludwig von Mises proved the futility of central planning in his numerous books, including The Theory of Money and Credit (1913), Socialism (1922), and Human Action (1940).” (The Financial Crisis And The Free Market Cure, pg 34)

 

If you haven’t objectively studied any of those four books, no worries. Bush, Obama, Bernanke, and Yellen haven’t either.

 

But you can watch the real-world economics of currencies burning the purchasing power of their peoples this morning in Crimea. I’m hearing that with the Ukrainian currency crashing (-21% YTD), the Ukraine’s stock market being up +43.9% YTD (in burning FX terms) is bullish.

 

Detached From Reality - yellow

 

Back to the Global Macro Grind

 

In Burning Bucks, the US Stock market was “up for 2014” too – for like 1.5 days. But, after US GDP almost getting cut in half sequentially, and some geopolitical risk pin-action in equity futures today, that will change. Life that is detached from reality generally does, in a hurry.

 

My inbox is jammed. I can’t count how many emails I received on Friday saying that the “market is up on a GDP slowdown – your research call feels right, but the market doesn’t care”, or something like that…

 

To be clear, I don’t go with the how markets and GDP “feel” thing. You can overpay to get that from someone else. While the SP500 was up a whopping +0.6% for 2014 YTD (it’s March fyi), it's mainly the inflation and #GrowthSlowing parts of the market leading that:

  1. Healthcare (XLV) = +7.2%
  2. Utilities (XLU) = +6.5%
  3. Basic Materials = +1.9%

The most meaningful parts of the economic cycle (the consumption economy) are actually down YTD:

  1. Consumer Staples (XLP) = -1.5%
  2. Financials (XLF) = -0.7%
  3. Industrials (XLI) = -0.4%

But no worries, as long as you aren’t long anything like Kinder Morgan (KMI, KMP, KMR) in Bernanke’s overvalued Yield Chasing space – or short anything that loves US #Stagflation (like Gold +11.4% YTD), you’re killing it with the whole “market is up” thing.

 

In other non-Crimean news, US GDP #GrowthSlowing sequentially (from 4.12% in Q313 to 2.37% in Q413) is only the beginning of the Down Dollar (USD down another -0.7% last wk, and down 3 of the last 4 weeks), Down Rates (UST 10yr Yield -38bps YTD) thing.

 

And, looking at the components of the US GDP report:

  1. The Deflator (made-up inflation rate) bounce, big time, off its almost 50 yr low
  2. Government Spending dropped -1.05% sequentially from a GDP contribution perspective

So, the key vectors in the P (Policy) piece of the Hedgeye GIP (Growth, inflation, Policy) model are going to require the US government to:

  1. MONETARY vector – have the Fed start telling you we need a Policy To Inflate in order to amplify “inequality”
  2. FISCAL vector – have Obama ramp up deficit spending again in order to pretend to slow the “inequality”

I know, both US monetary and fiscal policy going dovish on the margin is just fantastic. Because, without going to sub 2% US GDP growth and plus 2% made-up-reported-inflation growth, how the heck else could the Keynesians blame Russia?

 

I’m actually hearing from my contacts in Miami that the Mexicans are going to blame the Russians too. Instead of ripping on US GDP #GrowthSlowing on Friday, Mexico’s stock market dropped to -2.4% on the wk to -9.2% YTD.

 

Yep, life in Latin America is starting to suck. With the whole deficit-spending-debt-ramp thing, Venezuela and Argentina are reminding people that Latin American stock markets can go down on stagflation too (MSCI LATAM Index -0.1% last wk to -8.1% YTD).

 

So cheer up – the “market is up.” Away from food and energy prices ripping humanity another new one last week:

  1. CRB Foodstuffs Index +3.2% to +10.5% YTD
  2. Oats (I’m probably just a rich guy eating the stuff) +7.1% to +42.2% YTD
  3. Coffee up another +6.4% w/w to + 59.6% YTD

There’s not a lot to worry about re: the whole #InflationAccelerating thing either… Unless you aren’t detached from reality, of course.

 

Our immediate-term Risk Ranges are now as follows (our Top 12 macro ranges are in our Daily Trading Range product):

 

SPX 1825-1861

VIX 13.28-16.99

USD 79.59-80.31

EUR/USD 1.36-1.38

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Detached From Reality - G7 VIX

 

Detached From Reality - virt55



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Overbought, Oversold

“A good laugh and a long sleep are the two best cures.”

-Irish Proverb

 

Indeed. Happy Saint Patty’s Day to you! For we Irish-Scottish-Canadian-American mutts, it’s a good day to wake up with a smile. My two month old daughter had a great big one on her face before I left home this morning. Life is good.

 

After signaling immediate-term TRADE oversold on Friday (Gold and VIX signaled overbought), US Equity Futures are smiling this morning too. And they should be – there’s nothing like reviving the animal spirits of a bubble that deflated last week.

 

So sell some of that Gold and buy yourself whatever you like. Amongst others, we’d go with Lorillard (LO), Owens Corning (OC), and T. Rowe Price (TROW). The two best cures for a down US stock market YTD are oversold signals and up futures!

 

Back to the Global Macro Grind

 

Immediate-term TRADE overbought and oversold signals are what they are – risk management tools that should help augment your investment process, no matter what your investment duration is…

 

Another way to think about this is what I call Fading Beta (or more commonly referred to as selling high and buying low). I get that “it is often that a person’s mouth broke his nose” (Irish Proverb!), so I’m not trying to be cute when I write it like that. It’s just what I try to do.

 

Here are some clean cut immediate-term TRADE overbought signals from Friday:

  1. Gold immediate-term TRADE overbought = $1385
  2. VIX (front month) immediate-term TRADE overbought = 17.99
  3. Bonds overbought (yields oversold) at 10yr UST yield = 2.62%

In other words, the #InflationAccelerating-slows-growth asset allocation of Long Gold, Bonds, and Fear was overbought at the following 2014 YTD gains:

  1. Gold +15.1% YTD
  2. Bonds (10yr Yield) -37 basis points YTD to 2.65%
  3. Fear (VIX) = +29.9% YTD

Sure, you could have very well broken your own nose banging it against a wall trying to get back to break-even in something like:

  1. Dow Jones Industrial Index -3.1% YTD
  2. US Consumer Discretionary Stocks (XLY) -1.5% YTD
  3. SP500 -0.4% YTD

But why the stress? Why not relax a little and buy your favorite US stocks when they are on sale? Reality is that this business isn’t that easy. We’re all stressed – and that’s the point about having a pint every now and then. Takes the ole’ edge off!

 

You could have bought stocks (twice) at the all-time bubble highs (intraday moves toward 1881 on the SP500) on both Friday March 6th and Tuesday March 11th. Or you could have bought them 40 S&P points lower on March 14th at 1841. There’s a difference.

 

#Timing matters. So do counter-consensus Global Macro Themes like #InflationAccelerating. Here’s the update on that asset allocation shift as of last week:

  1. CRB Food Index flat (in a down US equity market) last week at +15.3% YTD
  2. Lean Hogs up another +6.1% last wk to +27.7% YTD
  3. Coffee prices up another +0.8% last wk to +75.7% YTD

I know. I know. I’m focused too much on what humans eat and drink for breakfast. How about slow-growth-yield-chasing?

  1. Silver +2.4% last week to +10.5% YTD
  2. Utilities (XLU) +2.3% to +7.7% YTD
  3. REITS flat (in a down US Equity market wk) at +8.3% YTD

Yep, that’s the deal – and while you can’t eat a REIT, you can definitely pay your inflating rent, and like it. Or not. Oh yes, Mucker “where the tongue slips, it speaks the truth.”

 

So don’t confuse oversold signals in US Equities (or overbought signals in Gold, Bonds, Utilities, etc.) with a new narrative, because #InflationAccelerating and #GrowthSlowing in Q114 are still here to stay.

 

For those of us who can buy inflation protection, it’s fine. We just don’t want you to buy the all-time bubble highs on overbought signals. After all, as another Irish Proverb goes, “if you buy what you don’t need, you might have to sell what you do.”

 

Our immediate-term Global Macro Risk Ranges are now:

 

UST 10yr Yield 2.61-2.75%

SPX 1

Nikkei 148

VIX 15.01-18.34

USD 79.21-79.86

Gold 1

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Overbought, Oversold - Chart of the Day

 

Overbought, Oversold - Virtual Portfolio


March 17, 2014

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BULLISH TRENDS

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March 17, 2014 - Slide5

March 17, 2014 - Slide6

 

BEARISH TRENDS

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March 17, 2014 - Slide13


LULU: Our Thesis vs. Consumer Opinion - Round 2

Takeaway: We will be hosting a call titled LULU: Our Thesis vs. Consumer Opinion - Round 2 on Monday, March 24th at 11:00 am ET

We will be releasing our new BLACKBOOK and hosting a call detailing our latest work on Lululemon (LULU) on Monday, March 24th at 11:00am ET.

  

We turned bearish on LULU in the Fall and conducted a consumer survey on key issues impacting demand in December. The results flashed major warning signals. So we pressed our short the week before the company preannounced and guided down.

  

We are currently re-running our survey to reassess the health of the brand from the consumers' vantage point. We will be asking many of the same questions that we did a quarter ago, which will allow us to look at the incremental change over the past few months. Rate of change matters to us more than anything with this name. The company is set to report earnings three days later on Thursday March 27th.

 

LULU: Our Thesis vs. Consumer Opinion - Round 2 - lulu

 

We'll explore in detail the following topics:

  1. Does LULU need to begin a more aggressive discounting strategy?
  2. New brands are encroaching on LULU's turf, is that rate slowing or accelerating?
  3. What is LULU's perceived price/value equation relative to other brandsand how is that changing?
  4. Growth in points of distribution for Yoga product - a key competitive threat for LULU.
  5. Insight into our store overlap analysis between Athleta and Lululemon
  6. UnderArmour scored so close to Nike in our last survey - which was a big surprise. Nike has been fighting back. Is it working?
  7. Is the 'I hate LULU Management!' factor (present in 58% of people responding last time) - still as severe? Any improvement?        

CALL DETAILS

  • Toll Free Number:
  • Direct Dial Number:
  • Conference Code: 154675#
  • Materials: CLICK HERE


The call will be held on Monday, March 24th at 11:00am ET. Please contact for more information.


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