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LEISURE LETTER (03/31/2104)

TICKERS: PENN, MGM, RHP

 

EVENTS TO WATCH:  UPCOMING EARNINGS / CONFERENCES / RELEASES 

Wednesday, April 2

  • March ADP Employment report

Friday, April 4

  • March NFP report

Tuesday-Thursday, April 8-10

  • Mid-America Gaming Congress (Columbus, OH)

Wednesday, April 9

  • SHO Investor Day

Thursday, April 10

  • HST Investor Day

 

COMPANY NEWS

PENN - announced it submitted to the Commonwealth of Massachusetts an electronic payment of $25 million for the Plainridge Park Casino gaming license.

TAKEAWAY:  Well on the way to opening the doors, any effort to rescind gaming across Massachusetts will now be met with massive and extended litigation. 

                                  

MGM –  MGM CEO Murren noted: Las Vegas receives 40 million visitors a year; 20% are first timers, 18% from overseas. As for Japan, Murren expects a casino by 2020.  In Japan, 60% of tourists come from Singapore, Korea and China.

TAKEAWAY:  Setting the stage for a massive bidding war over the expected Tokyo Integrated Resort...

 

RHP – the Company entered into an agreement to purchase the property at 300 Broadway Street, Nashville.  The building houses the Opry Originals gift store on the ground level while 16,000 sq. ft. of total office space encompass the 2nd and 3rd floors of the property.

TAKEAWAY:  Sounds like a corporate HQ relocation is in the works…

 

Great Wolf – the Massachusetts Economic Assistance Coordinating Council last week awarded $17.2 million to Great Wolf for its first New England location – the redevelopment of a Holiday Inn with a Coco Key water resort in Fitchburg, MA (30 miles north of Worchester, MA).  Great Wolf will redesign and expand the water park from 25,000 square feet to 55,000 square feet, convert the expo center into 81 new hotel rooms, and rebrand the hotel. The total number of hotel rooms will be increased from 245 to 406.   Great Wolf Resorts anticipates the project will generate more than 400,000 visitors annually.

TAKEAWAY: Could a RE-IPO be in the planning?  Recall, Apollo took WOLF private in June 2012 for $7.85/share. The company currently operates 12 destinations and Fitchburg, MA will be their 13th location and Garden Grove, CA is scheduled to open in 2015. 

 

Thomas Cook – recorded a growth 2% in bookings for next summer, according to data accumulated up to March 15.  Thomas Cook has sold 50% of its programming for the season while it has not changed the capacity nor prices.  CEO Harriet Green said, "An increase in bookings for the summer, is encouraging. The winter business was satisfactory, despite the market disruption caused by the significant continuous riots in Egypt."

 

For the UK, bookings are +3% YoY over last year, with a 1% reduced capacity and a price drop of 2%.  In Continental Europe, bookings are +1%, with matched capacity and increased prices by 1%.  In the Nordic countries, sales are 2% above, with 3% more capacity but a reduction of rates of 2%.  For the winter program, Thomas Cook sold 93%, but the results have been very affected by Egypt.  Accumulated bookings are 4% below last year, with a reduced capacity of 5% and 1% higher prices.

TAKEAWAY:  Tour bookings are up for the summer but the pricing commentary is weak

 

INDUSTRY NEWS              

Macau / Zhuhai border crossing – a new e-channel, immigration lane featuring 23 automated immigration clearance and processing checkpoints opened.  The e-channel lane will reduce immigration wait times from up to 30 minutes to no more than 5 minutes. 

TAKEAWAY:  Having visited the Macau/Zhuhai border crossing, it reminds us of the San Diego/Tijuana border and immigration crossing but without the cars and 100x times the number of people.  Anything efforts to reduce processing time, simply increases time at the table and is a positive for the Mass gaming segment. 

  

New York Proposal 1 Gaming Expansion – New York’s Gaming Commission's Facility Location Board will put out requests for applications Monday for four privately owned casinos in three regions of the state: the Albany area, Catskills and Southern Tier.  Based on media reports, there are at least three bidders in each region who have expressed public intentions.  Each application comes with a $1 million fee to be used by the board to investigate each proposal. If the board doesn't use all the money, the remainder would be returned to the applicant.   The application process will end on June 30. To apply, a bidder “must illustrate to the board's satisfaction that local support has been demonstrated.

TAKEAWAY:  Very soon we will know the depth of interest in developing new casinos across New York.


MACRO

Chinese travel agents stop selling tickets to Malaysia Times of India
China's online ticketing sites (eLong, LY.com, Qunar, Mango) have stopped booking on flights going to Malaysia. This is the first major commercial backlash against Malaysia after Kuala Lumpur announced that there was no hope for passengers of the missing MH370 flight on March 24.  "We will continue the ban indefinitely until the Malaysian government and Malaysia Airlines release every piece of information they have in order to find out the truth about the missing flight as soon as possible," wrote eLong.

TAKEAWAY:  A widening rift in Malaysia-China relations could hurt Malaysian economy and potentially impact Singapore gaming.

 

China Macro - 1Q14 China GDP is expected to slow to 7.4% YoY (Bloomberg), the lowest since 1Q09 when GDP was 7.3%.  Chinese property prices are reportedly cooling with economic slowdown and lower level of bank interest in making new real estate loans. 

TAKEAWAY:  Not good economic news for Macau but not exactly awful. The Chinese economy would need to really hit the skids to slowdown the Macau juggernaut. 

 

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.


Overbought, Oversold

This note was originally published at 8am on March 17, 2014 for Hedgeye subscribers.

“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 1828-1867

Nikkei 14217-14898

VIX 15.01-18.34

USD 79.21-79.86

Gold 1351-1388

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Overbought, Oversold - Chart of the Day

 

Overbought, Oversold - Virtual Portfolio



Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.65%
  • SHORT SIGNALS 78.64%

Tell Me A Story

“People don’t just share information, they tell stories.”

-Jonah Berger

 

Per Jonah Berger in his new best selling #behavioral book, Contagious, that’s one of six principles that “cause things to be talked about, shared, and imitated” – storytelling. Some of the others you might want to consider are things like “social currency”, triggers, and emotion (page 23).

 

What makes research content #contagious? That will be topic #1 at our company meeting day @Hedgeye HQ tomorrow. All 52 of our employees will get a copy of the book and be asked to answer that question in 140 characters or less.

 

Tell Me A Story - co9

 

So tell me a story about what’s happening in markets for 2014 year-to-date. It’s the end of the 1st quarter, so don’t forget to augment your story with last price. After all, storytelling in our profession starts with a rear-view looking score.

 

Back to the Global Macro Grind

 

What broader narrative can we wrap our idea in?” –Berger (pg 24). Given the US economic data and how markets have scored it YTD, I think the answer to that is pretty straightforward: inflation slows growth.

 

That, of course, is the opposite of where consensus was when 2014 started. Virtually all of the #OldWall and Washington economists and strategists were taking up both their US GDP and SP500 forecasts. On inflation, the cover of the (Keynesian) Economist (NOV 2013) was titled “The Perils of Deflation.”

 

Instead, 3 months into the year:

  1. #InflationAccelerating = CRB Commodities and Food Indexes +8.9% and +19.3% YTD, respectively
  2. #GrowthSlowing = 10yr UST Bond Yield -31bps YTD to 2.72%
  3. YTD US Stocks = Dow Jones -1.5%, Russell2000 -1.0%, Nasdaq -0.5%, and SP500 +0.5%

Not to be confused with the Italian Stock Market (MIB Index), which has been the recipient of a #StrongCurrency Tax Cut (CPI in March fell to +0.4% y/y), and is up another +0.7% this morning to +14.2% YTD, the US consumer side of the US stock market has been flat out ugly.

 

Within the SP500’s roaring +0.5% YTD gain there’s a significant amount of #SectorVariance:

  1. US Consumer Discretionary (XLY) down another -2.1% last week to -3.8% YTD
  2. Whereas slow-growth #YieldChasing Utilities (XLU) were +1.2% in a down SPX tape last wk to +8.0% YTD

While we realize that both the (un-elected) Fed and the (elected) US Government say there is no impact on America when food inflation accelerates, we’ll still keep reality on your radar:

  1. Coffee prices were up +5.5% last week to +59.9% YTD
  2. Corn prices were up +2.7% last week to +14.4% YTD
  3. Soy prices were up +2.0% last week to +12.5% YTD

Oh, that would be in US Dollar terms.

 

Yes, dear linear-economists, I have a non-fiction story for you  - inflation is priced locally (i.e. in local currency). So, if you get the rate of change (slope of the line) in a country’s currency right, you’ll get inflation right. If you get the slope of inflation right, you’ll get the rate of change in real growth right.

 

With the US Dollar Index still below our long-term TAIL risk line of $81.17, maybe that’s why we are starting to see a resurgence in the mother of all Burning Buck trades – Emerging Markets. Yep, as in the ones in Asia and Latin America that hit all-time highs when the US Dollar Index hit all-time lows (2011).

 

With Facebook (FB) face planting last week, look at what Emerging Markets did:

  1. MSCI Emerging Markets Index = +3.2% on the week to -2.7% YTD
  2. MSCI Latin America Index = +5.2% to -1.9% YTD

Yep, the squirrels in Brazilian Equities are running wild again as Latin America goes nuts for an alternative to being long a US social-media-bubble stock that lost 30-40% of its value in a month!

 

So would you rather be long socialism or social media? Tell me a story.

 

With a 3-5 year old story about “Flash Boys” (machines front-running monkeys) being popularized by Michael Lewis and 60 Minutes last night, I’m looking for something no one has borrowed from someone else. I’m looking for a broader narrative that can make us money by being early, instead of popular.

 

Our immediate-term Global Macro Risk Ranges are now:

 

UST 10yr Yield 2.64-2.81%

SPX 1

VIX 13.89-15.49

USD 79.55-80.41

EUR/USD 1.36-1.38

Gold 1

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Tell Me A Story - Chart of the Day

 

Tell Me A Story - Virtual Portfolio


March 31, 2014

March 31, 2014 - Slide1 

BULLISH TRENDS

March 31, 2014 - Slide2

March 31, 2014 - Slide3

March 31, 2014 - Slide4

March 31, 2014 - Slide5

March 31, 2014 - Slide6

 

BEARISH TRENDS

March 31, 2014 - Slide7

March 31, 2014 - Slide8

March 31, 2014 - Slide9

March 31, 2014 - Slide10

March 31, 2014 - Slide11
March 31, 2014 - Slide12


THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – March 31, 2014


As we look at today's setup for the S&P 500, the range is 32 points or 0.63% downside to 1846 and 1.10% upside to 1878.                                               

                                                                                

SECTOR PERFORMANCE

 

THE HEDGEYE DAILY OUTLOOK - 1

 

THE HEDGEYE DAILY OUTLOOK - 2

 

EQUITY SENTIMENT:

 

THE HEDGEYE DAILY OUTLOOK - 10                                                                                                                                                                  

 

CREDIT/ECONOMIC MARKET LOOK:

  • YIELD CURVE: 2.29 from 2.27
  • VIX closed at 14.41 1 day percent change of -1.44%

MACRO DATA POINTS (Bloomberg Estimates):

  • 9am: ISM Milwaukee, March (prior 48.59)
  • 9:45am: Chicago Purchasing Mgr, March., est. 59.0 (prior 59.8)
  • 9:55am: Fed’s Yellen speaks in Chicago
  • 10:am: Annual Wholesale Inventory and Sales Revisions
  • 10:30am: Dallas Fed Manufacturing, March, est. 3.0 (prior 0.3)
  • Noon: USDA quarterly grain stocks report
  • 8pm: St Louis Fed VP David Andolfatto on virtual currencies

GOVERNMENT:

    • Obamacare reaches March 31 deadline
    • Senate to vote on House-passed doc-fix legislation w/60-vote threshold to send to Obama for signature
    • Senate vote on whether to take up HR2979, incl. extension of jobless benefits
    • Senate Finance Cmte will likely vote during this week to revive dozens of tax breaks that expired Dec. 31
    • IMF releases parts of Global Financial Stability Report
    • 10am: Supreme Court releases case list, hears arguments in software patenting case
    • 10:30am: FCC holds monthly open commission mtg; to consider Chairman Tom Wheeler’s multiple tv station mkt control proposal, Wi-fi use

WHAT TO WATCH:

  • Kerry demands Russian retreat, Lavrov seeks federal Ukraine
  • Putin calls Obama to discuss resolution to Ukraine
  • World ill-prepared for global warming impact, UN panel says
  • Obamacare deadline for some private insurance sign ups
  • Banks including Citi, JPMorgan in Swiss regulator focus on FX
  • GM air bag defect investigation considered by U.S. in 2007
  • MH370 searchers operating on guesstimates, Abbott says
  • Paramount’s “Noah” rises to top box office in weekend debut
  • High-frequency traders ripping off investors: Michael Lewis
  • Supreme Court releases case list, hears software patenting case arguments
  • Apple-Samsung patents trial begins in San Jose
  • Port Authority’s Samson resigns after report blasts agency
  • Medtronic ends symplicity HTN-4 trial, mulls IDE path forward
  • Medtronic novel aortic valve reduces deaths vs surgery
  • Tesla says China general manager Kingston Chang left co.
  • Blucora said to plan all-cash offer for Brookstone: WSJ
  • Japan Feb. industrial production falls 2.3% m/m; est. up 0.3%
  • Euro-area inflation lowest in more than 4 years, misses ests.
  • Samsung SDI agrees to buy Cheil Industries for $3.3b
  • Erdogan’s party wins Turkish municipal vote; lira rises
  • Alibaba to spend $692m to partner with Intime Retail
  • Daylight saving change takes place in U.K., most of Europe

EARNINGS:

    • Cal-Maine Foods (CALM) 6:30am, $1.59
    • Gas Natural (EGAS) 4:14pm, $0.30
    • InterOil (IOC) 6am, $0.04
    • Tribune (TRBAA) pre-mkt, $0.99
    • UTi Worldwide (UTIW) 8am, ($0.12)

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)

  • Nickel Set for Biggest Quarterly Gain Since 2010 on Supply View
  • Shanghai Gold Cheapest to London Since 2012 on Weak Demand
  • Grain Bulls Proved Right With Best Rally Since 2010: Commodities
  • WTI Trades Near 3-Week High on U.S.-Russia Talks; Brent Steady
  • Nickel-Ore Supply in China Seen Lasting Five More Months on Ban
  • Gold Trades Near 6-Week Low for Monthly Drop on Stimulus Outlook
  • Wheat Pares Biggest Monthly Gain Since 2012 on Rains; Corn Falls
  • Sugar Falls After Wk-Long Rally on Weather Doubts; Arabica Drops
  • World Ill-Prepared for Global Warming Impacts, UN Panel Says
  • Rebar Pares Biggest Quarterly Drop in 9 Months as Output Falls
  • Record Natural-Gas Need Keeps Bulls Betting on Advances: Energy
  • Former Xstrata CEO Davis Raises About $3.75 Billion to Buy Mines
  • U.S. Thermal Coal Faces Tough Road on Retirements, Clean Energy
  • Gold Sales by Japanese Retailer Jump Fivefold Before Tax Change

THE HEDGEYE DAILY OUTLOOK - 5

 

CURRENCIES


THE HEDGEYE DAILY OUTLOOK - 6

 

GLOBAL PERFORMANCE

 

THE HEDGEYE DAILY OUTLOOK - 3

 

THE HEDGEYE DAILY OUTLOOK - 4

 

EUROPEAN MARKETS

 

THE HEDGEYE DAILY OUTLOOK - 7

 

ASIAN MARKETS

 

THE HEDGEYE DAILY OUTLOOK - 8

 

MIDDLE EAST

 

THE HEDGEYE DAILY OUTLOOK - 9

 

 

The Hedgeye Macro Team

 

 

 

 

 

 

 

 

 

 

 

 

 

 


Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.

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