LEISURE LETTER (04/01/2014)




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



SJM – (Macau Business Daily) SJM may increase leverage to fund its 2017 Lisboa Palace but the company is under no financial pressure, says SJM’s CEO Ambrose So. So said that they may have to vie for labor with other gaming operators like WYNN and MGM. MGM Cotai expected to open in 2016, requires at least 8,000 employees (same as SJM Cotai), while Wynn Palace needs “9,000 to 10,000 workers” when it opens by 2016.  “In these two or three years there will be numerous university graduates which can supplement the labor shortage,” Mr So said yesterday. “But we still have to see the human resources situation by then to decide any policy.”


TAKEAWAY:  We worry less about demand and more about labor shortages.


BYI – acquired the land-based distribution rights to a selection of social casino titles currently live on New Jersey-based developer High 5 Games’ Facebook apps.  Bally gains the rights to ten titles from the High 5 Casino and Asian-facing Shake the Sky Casino apps: Gypsy, Madame Monarch, Pasión y Fuego, Foxy Dynamite, Valkyrie Queen, Palace of Magic, Zen Panda, Night Jasmine, Silk & Steel and MISS Universe Crowning Moment.  The deal follows the companies agreeing to extend their supplier partnership in December last year following the first roll-out of H5G’s slot games repurposed as land-based games. Under the terms of the partnership H5G retains the exclusive online, social and mobile rights to the titles.

TAKEAWAY:  Setting the stage for national online gaming while trying to attract the new generation of younger gamblers who do not play slot machines.


CZR – the High Roller, the 550 feet tall observation deck wheel officially opened yesterday at 1 p.m.  The High Roller includes 28 cabins that can spaciously fit up to 40 people each.

TAKEAWAY:  While we expect the opening to draw immediate visitor attention, it remains to be seen if the attraction has sustainability. 


H – the Park Hyatt is scheduled to open July 20, 2014 in NYC and will feature 210 luxurious guestrooms, including 92 premier suites, all with floor-to-ceiling windows and nestled within the first 25 floors of the iconic, 90-story One57 skyscraper.  Nightly rates for a standard room start at $795 to $1,295. 

TAKEAWAY:  This property will likely become a go to property for NYC visitors and tourists due to its central location, newness, and up-scale amenities. 


MAR - $200MM Protea deal completed

TAKEAWAY:  MAR does not expect the acquisition to have a material impact on 2014 earnings


RCL – will send the Explorer of the Seas to Southampton, England in the summer of 2015 instead of the Adventure of the Seas as previously announced.  Prior to starting European service, Explorer will have a month-long drydock to be revitalized and receive features such as virtual balconies. RCL said, "The deployment of Explorer of the Seas to the UK is not associated with any issues with Adventure of the Seas. Stay tuned as the reason for Explorer of the Seas' deployment will become evident shortly."


INDUSTRY NEWS              

Macau March GGR – totaled HKD 34.42 billion (MOP 35.453 billion, USD 4.44 billion), up 13.14% YoY and down 6.72% MoM.  For the first quarter 2014, total GGR was HKD 99.222 billion (MOP 102.199 billion), up 19.83% YoY. 

TAKEAWAY:  Total March GGR was slightly better than our estimate.  For April, we forecast GGR, up 15% YoY


Gaming facilities are not a priority for Kinmen Macau Business

Establishing casinos on Taiwan’s Kinmen islands is not a priority.  Deputy mayor of Kinmen, Wu Yu Chin, said residents were worried that casinos would bring security problems.  The Kinmen group is close to the mainland and was one of the candidates Taipei considered as a gambling destination.  Kinmen officials have been in Macau seeking foreign investment.


China Graft & Corruption Crackdown –  1) Chinese authorities have seized assets worth at least 90 billion yuan (S$18.3 billion) from family members and associates of retired domestic security czar Zhou Yongkang, who is at the center of China's biggest corruption scandal in more than six decades.  2) More than 300 of Mr Zhou's relatives, political allies, proteges and staff have also been taken into custody or questioned in the past four months.   3) A former Zhou Yongkang aide Ji Wenlin had been removed from his post as a vice governor of the southern island province of Hainan.

TAKEAWAY:  Visible signs the Central Government won't allow officials to set outside of Central Government mandates and policy.


New York State Gaming Commission Facility Location Board – released application details for the three regions: Capital, Catskills and Southern Tier.  All applications are due by June 30th and must include a $1 million.  Additionally, the licensing fees will be: 

  • Capital Region: $50 million
  • Eastern Southern Tier: Broome, Chemung, Schuylor, Tioga or Tompkins Counties: $35 million; Wayne or Seneca Counties: $50 million; if a license is awarded in Wayne or Seneca Counties, the fee for the remaining counties in the region would be $20 million.
  • Catskills/Hudson Valley: Dutchess or Orange Counties: $70 million. If no license is awarded in Dutchess or Orange Counties, the licensing fee for the remaining five counties in the region (Columbia, Delaware, Greene, Sullivan and Ulster Counties) would be $50 million. If a license is awarded in Dutchess or Orange Counties, the fee for the remaining counties would be $35 million.

LEISURE LETTER (04/01/2014) - Chart 1   NY Gamning Regions

Source: New York State Gaming Commission


The Resort Gaming Facility Location Board will evaluate applications on the following scale and issue a finding on each:

  • 70% Economic activity and business development factors
  • 20% Local impact and siting factors
  • 10% Workforce enhancement factors

The timeline for the casino siting process:

  • June 30, Bids due
  • July-August, Gaming Facility Location Board reviews, evaluates submissions
  • Early fall, commission commences licensing review of applicants
  • Early fall, casino siting and operators formally announced

TAKEAWAY:  We expected the media and public relations machines to hit full speed as the battle of sound bites begins.  Expect commentary from current pari-mutuels Tioga Downs, Monticello Casino & Raceway, and Saratoga Raceway. 


New York State & Internet Poker – Senate Gaming Chairman John Bonacic introduced Senate Bill 6913, which would amend the current racing and pari-mutuel regulations, and allow 10 online poker licenses, each for 10 years and a $10 million licensing fee.  Internet poker would be taxed at 15%.   

TAKEAWAY:  If New York passes this legislation, we expect additional states to quickly follow.  SB 6913, however, disqualifies any company charged with accepting online wagering following the UIGEA in 2006.  


China March Official PMI was 50.3 versus 50.2 in February; however, new export orders index was 50.1 an improvement from 48.2 in February.  

TAKEAWAY:  In-line with Street expectations


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.

‘Extraordinarily’ Committed

Client Talking Points

Emerging Markets

The great bull market in Emerging Markets just so happened to coincide with the US Dollar Index hitting her all-time lows (2011). Janet “Mother of All Doves” Yellen is committed to bringing that puppy back online. After a big up week last week, EM Asia rocking right now with the Philippines and Indonesia up +1.3%-1.9% overnight bringing it to +12% and +14%, respectively, year-to-date. Meanwhile, Yellen’s Fed is “extraordinarily committed” to devaluing the Dollar and keeping the 10-year below 2.81%. Believe her.


Euros. They like Burning Bucks. So do European consumers. The EUR/USD is holding all lines of Hedgeye support and equity markets like Italy and Portugal continue to candy crush the Dow at +15%-16% year-to-date. 


Gold is holding Hedgeye TREND signal line of $1,276 support and is up small this morning. The biggest headwind for Gold is that the crowd bought the living daylights out of futures/options contracts at the mid-March top (the net long position peaked at over +125,000 contracts and is finally burning off some as the price reaction does). On a related note, the SPX risk range is 1854-1878 – bubbling back up to the all-time highs (on no volume).

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

Hologic is emerging from an extremely tough period which has left investors wary of further missteps. In our view, Hologic and its new management are set to show solid growth over the next several years. We have built two survey tools to track and forecast the two critical elements that will drive this acceleration. The first survey tool measures 3-D Mammography placements every month. Recently we have detected acceleration in month over month placements. When Hologic finally receives a reimbursement code from Medicare, placements will accelerate further, perhaps even sooner. With our survey, we'll see it real time. In addition to our mammography survey. We've been running a monthly survey of OB/GYNs asking them questions to help us forecast the rest of Hologic's businesses, some of which have been faced with significant headwinds.  Based on our survey, we think those headwinds are fading. If the Affordable Care Act actually manages to reduce the number of uninsured, Hologic is one of the best positioned companies.



Construction activity remains cyclically depressed, but has likely begun the long process of recovery. A large multi-year rebound in construction should provide a tailwind to OC shares that the market appears to be underestimating. Both residential and nonresidential construction in the U.S. would need to roughly double to reach post-war demographic norms. As credit returns to the market and government funded construction begins to rebound, construction markets should make steady gains in coming years, quarterly weather aside, supporting OC’s revenue and capacity utilization.


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


TREASURIES: 2.75% 10yr yield doing a whole heck of a lot of nothing this morning #GrowthSlowing @KeithMcCullough


"One can choose to go back toward safety or forward toward growth." - Abraham Maslow


On this day ten years ago… April 1, 2004, Google launched Gmail and almost immediately changed the way people use email. Gmail accomplished the tricky feat of staying ahead of the competition technologically while growing to become the world's largest email service, boasting more than 500 million users. (CNN)

This Story Doesn't End Well

This note was originally published at 8am on March 18, 2014 for Hedgeye subscribers.

“Appreciate stories that do not come out well, for they are very much like a good deal of life.”

-James A. Garfield


According to Candice Millard in Destiny of The Republic (pg 19) , that’s what the 20th President of the United States, James A. Garfield, told his kids one night after reading them Shakespeare’s Othello.


Admittedly, I read my kids too many fairy tales. Maybe that’s my escape from the latest chapter of reality that is the US Federal Reserve un-officially Burning The Buck via its Policy To Inflate.


This morning you’ll see the initial outcrop of Dollar Devaluation – consumer price #InflationAccelerating again in the most recent made-up government CPI report. Tomorrow, you’ll see Janet Yellen officially abandon the Fed’s dual mandate and roll with “qualitative rate guidance” (i.e. price fixing interest rates, like Japan did).


This Story Doesn't End Well - usd1


Back to the Global Macro Grind


No, this story doesn’t end well for the US economy and at least 80% of its people. Yes, that is a forecast. And it’s aligned with at least the last 400-2500 years of economic #history.


But don’t worry, the Fed’s main leading indicator (the US stock market) can still go up on this. Venezuela’s was up +460% (in its burning currency) last year, and has since fallen to -5.6% in 2014 YTD. Germany’s stock market went parabolic in the 1920s too.


Dollar Down yesterday perpetuated another no-volume (-20% vs. @Hedgeye TREND) rip in US stocks. While @FederalReserve’s esteemed Ph.D. economists will lie to you and suggest that price fixing the long-end of the curve isn’t “causal” to currency devaluation, it is.


Moreover, what’s left of free-market pricing believes it is – check out these 30-day US Dollar Correlations:


1. SP500 -0.86 (inversely correlated with USD)

2. Commodities (CRB Index) -0.84

3. Gold -0.93


Yep, that’s that. The entire world is front-running Janet Yellen talking down interest rates in the face of #InflationAccelerating.


Since no one who calls the shots at either the White House or the Fed has ever traded macro market risk in their life, don’t expect them to get the most important aspect of risk managing markets – expectations.


If you want to look at the market’s most obvious expectations on US monetary and fiscal policy, look at futures and options positions in the CFTC (US Commodities Futures Trading Commission) data:


1. Gold = +123,007 net long contracts (vs. its 1yr avg of +60,763 contracts)

2. Crude Oil = +432,840 net long contracts (vs. its 1yr avg of +349,652 contracts)

3. US Dollar = -197 net short contracts (vs. its 1yr avg of +17,809 contracts)


In other words, front-running an un-elected cartel of Keynesian economists who make-up new policy rules as they go (the Fed) has turned into a big business on Wall Street. If you don’t believe that, tell yourself fairy tales too.


Like it did in Q1 of both 2008 and 2011, the market is expecting both Congress and the Fed to Devalue the Dollar in the face of slowing economic data. If you go back to the 2011 playbook, you can see that Gold, Bonds, and Utilities (XLU) were beating the Dow steadily.


To review what the market is front-running:


1. FISCAL policy – moar government deficit spending

2. MONETARY policy – talking down the long-end of the curve (rates)


On both of those currency vectors (yes, decisions your elected or un-elected bureaucrats make are causal), unlike last year (when both were Dollar Bullish with sequestration + tapering), Mr. Macro Market is taking the US Dollar to its YTD lows.


In other Global Macro news, Germany appears to be finally slowing. While it’s been a good run for the German economy off its European Crisis lows, here’s the real-time market update:


1. Germany’s stock market (the DAX) broke @Hedgeye TREND support of 9273 last week

2. Germany’s bond market has ramped in the last month with 10yr Bund Yield -10bps m/m to 1.56%

3. Germany’s ZEW (confidence reading) just dropped in March to 46.6 vs 55.7 in February


I know. If China, Japan, USA, and now Germany see the slopes of their economic growth curves roll over (all at the same time) what could possibly go wrong? Oh, and Russia (stock market -23% YTD) is still crashing. This story only ends well in some sadistic dream.


Our immediate-term Global Macro Risk Ranges are now (we have 12 ranges in our Daily Trading Range product):


SPX 1846-1866

DAX 8909-9273

VIX 14.72-17.56
USD 79.21-79.79

Gold 1355-1387


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


This Story Doesn't End Well - Chart of the Day


This Story Doesn't End Well - Virtual Portfolio

investing ideas

Risk Managed Long Term Investing for Pros

Hedgeye CEO Keith McCullough handpicks the “best of the best” long and short ideas delivered to him by our team of over 30 research analysts across myriad sectors.

Fishy Feelings

“It’s ok to eat fish because they don’t have any feelings.”

-Kurt Cobain


One of the core #behavioral principles in Jonah Berger’s Contagious is emotion. You need to make people feel something. And that something can be positive or negative, provided that it delivers what he calls “high arousal.” Awe, Amusement, Anger, and Anxiety (pg 109) will all do the trick.


Fishy Feelings - shark


Whether it was Janet Yellen telling you she is “extraordinarily committed” to burning your currency or Michael Lewis proclaiming his book is for the “little guy,” it was all out there yesterday.


So let’s do it for the children. Let’s keep the risk free rate of return on American Savers at 0% forever and have the FBI raid high-frequency-tweeters. We commoners of capitalism don’t have any feelings anyway.


Back to the Global Macro #Grind


On literally no volume yesterday, the SP500 made its best attempt to bubble itself back up to her all-time-closing high of 1878. Just wait until they ban all technology and bring back the NYSE dinosaurs – when you get squeezed, you’ll feel no volume at all.


I better be careful about calling anything we do innovative, or the fun-cops are going to come after me too. The “little guys” (read big lazy guys at bailed out #OldWall banks that can’t compete with math) have their biggest lobby yet.


At the risk of explaining how fractal math helps investors reading this note front-run the machines, let’s just keep our market update to a simple 3-factor model this morning instead:

  1. PRICE

And let’s score the US stock market (SP500) on all three:

  1. PRICE - making higher-lows, but not yet higher-highs (vs. the all-time closing high)
  2. VOLUME – decelerating on up days; accelerating on down days
  3. VOLTILITY – front-month VIX continues to signal higher-lows and that the term-structure of VIX is way too complacent

Notwithstanding Biotech and Social Media stocks dropping 15-35% in 2-weeks, what could possibly go wrong in Q2?

  1. FX – the US Dollar continues to signal long-term TAIL risk (trading below our TAIL risk line of $81.17 on the US Dollar Index)
  2. 10YR – continues to signal a series of lower-highs and remains below @Hedgeye TREND resistance of 2.81%
  3. SECTOR VARIANCE – Consumer Stocks (XLY) -3.2% vs slow-growth #YieldChasing Utilities (XLU) +9.2% YTD

I know. I know. Yellen has an implicit policy to Devalue the Dollar, let #InflationAccelerating (Food Prices +19% YTD) rip America’s poor a new one, and slow 71% of the US economy (Consumption), but you can go eat a REIT (+8% YTD), and like it.


If inflation slowing real US consumption growth wasn’t enough, now we have a series of non-weather related #GrowthSlowing data points interconnecting around the world. Here’s this morning’s macro data:

  1. CHINA – HSBC PMI (producer manufacturing index) slowed yet again in March to 48.0 vs 48.5 in February
  2. JAPAN – PMI slowed again in MAR to 53.9 vs. 55.5 in FEB
  3. UK – PMI finally slowed sequentially to 55.3 MAR v. 56.9 in FEB

Yep, in spite of its strong (relative) fiscal, monetary, and currency policy, even the United Kingdom is subject to gravity (i.e. at some point the rate of change in the economic acceleration slows). But, don’t worry, Keynesian economic policy makers say you don’t have to feel that.


They’ll smooth it out. You know, rig gravity. Right, right. And Larry Summers is my uncle.


Amused or anxious yet? No worries - all the backward looking political economists will not be writing about any of this today, because they’re still trying to fit the #weather data to a real consumption #GrowthSlowing narrative that they have once again missed.


If you’re in the 10% of America who gets rich on government spending, money printing, and selling books to mediocre minds in the media, you don’t have to have any feelings about that either. Remember, it’s for the children.


Our immediate-term Global Macro Risk Ranges are now:



Nikkei 14098-14887

VIX 13.56=15.58

USD 79.81-80.44

Pound 1.65-1.67

Gold 1


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Fishy Feelings - Chart of the Day


Fishy Feelings - Virtual Portfolio


TODAY’S S&P 500 SET-UP – April 1, 2014

As we look at today's setup for the S&P 500, the range is 24 points or 0.98% downside to 1854 and 0.30% upside to 1878.                            










THE HEDGEYE DAILY OUTLOOK - 10                                                                                                                                                                  



  • YIELD CURVE: 2.31 from 2.30
  • VIX closed at 13.88 1 day percent change of -3.68%

MACRO DATA POINTS (Bloomberg Estimates):

  • 7:45am: ICSC weekly retail sales
  • 8:55am  Redbook weekly sales
  • 9:45am: Markit U.S. Manufacturing PMI, March final, est. 56 (prior 55.5)
  • 10am: ISM Manufacturing Index, March, est. 54 (prior 53.2)
  • ISM Prices Paid, March., est. 59.5 (prior 60)
  • 10am: Construction Spending, m/m, Feb., est. 0% (prior 0.1%)
  • 10am: IBD/TIPP Economic Optimism, April, est. 46.0 (prior 45.1
  • TBA: Domestic Vehicle Sales, March., est. 12.4m (prior 11.98m)
  • Total Vehicle Sales, March., est. 15.8m (prior 15.27m)
  • 4:30pm: API weekly oil inventories


    • House may take up Senate-passed measure w/Ukraine aid, Russia sanctions
    • 9:30am: Caterpillar’s Chief Tax Officer Robin Beran, Financial Svcs Division VP Julie Lagacy, former Senior Intl Tax Manager Rodney Perkins scheduled to testify before Senate Homeland Security and Govt Affairs panel on offshore tax strategy
    • 10am: Supreme Court may issue opinions
    • 12pm: FCC Commissioner Michael O’Rielly delivers remarks at Federal Communications Bar Assn
    • Budget panels/hearings
    • House Budget Cmte’s Ryan plans FY15 budget resolution release
    • 3pm: House Appropriations panel on financial services with Chairman Mary Jo White
    • U.S. Election Wrap: Obama Backs Schatz in Hawaii


  • GM CEO Mary Barra testifies before House Energy panel on recalls
  • FBI probes high-frequency traders for abuse of nonpublic information
  • NATO ministers meet on Ukraine as Russia starts troop pullback
  • Automakers incl. Chrysler, Ford, GM report March auto sales
  • HP reaches $57m settlement in shareholder lawsuit
  • Yahoo said to be in talks for News Distribution Network: WSJ
  • OCBC bids $5b in biggest Hong Kong bank offer since 2001
  • Obamacare sign-up ends as it began with crashes, new challenges
  • Euro-area manufacturing stays near 3-year high
  • Euro-area unemployment stays at 11.9%, Italy jobless at record
  • China HSBC March manufacturing PMI 48.0; est. 48.1
  • Macau March casino rev. climbs 13.1%, est. 13%
  • CAT’s Robin Beran at Senate panel on offshore tax strategy
  • House Budget Cmte Chairman Paul Ryan releases budget plan
  • North Korea shows no signs of missile launch, South says
  • Bouygues extends its offer for SFR by two weeks
  • Malaysia plane hunt may take long as start point uncertain


    • Apollo Education Group (APOL) 4:01pm, $0.19


  • Commodities Defy Citigroup ‘Death Bells’ With Quarter’s Best
  • China Milk Thirst Hands U.S. Dairies Record Profits: Commodities
  • WTI Drops for Second Day on China Economy Concern; Brent Steady
  • Japan Traders Seen Returning $3 Billion on Commodities Fall
  • Soybeans Rise to Nine-Month High as U.S. Reserves at 10-Year Low
  • Gold Trades Near 7-Week Low as Investors Weigh Stimulus Outlook
  • Copper Trades Near Three-Week High on China Stimulus Speculation
  • Rebar in Shanghai Advances as Iron Ore Surges Most Since August
  • Sugar Exports From Pakistan Seen Dropping as Inventories Shrink
  • Pecora Sees Gold Bottom This Year Before Rebound Toward Record
  • Gazprom Raises Ukraine Gas Price as Government Seeks Cash
  • Hong Kong Property Tycoon Making $533 Million Solar Bet: Energy
  • European Gas Prices Plunge on High Storage Levels, Mild Weather
  • Iron Ore Trims Quarterly Loss as China Seen Countering Slowdown

























The Hedgeye Macro Team