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LEISURE LETTER (05/02/2014)



Friday, May 2

  • HT Q1 – 9am , Passcode: 1398938

Monday, May 5

  • Genting Singapore Q1 – 6am 

Tuesday, May 6

  • RHP Q1  – 10am , Passcode: 25122491
  • SHO Q1  – 12pm
  • TRIP Q1  – 430pm
  • DIS FQ2  – 5pm , Passcode: 36995300

Wednesday, May 7

  • STAY Q1  – 830am
  • STN Q1 – 4pm
  • CZR Q1 – 5pm , Passcode: 20337702

Thursday, May 8

  • PCLN Q1 – 730am
  • MPEL Q1 – 830am , Passcode: MPEL
  • CAR Q1 – 830am , Passcode Avis Budget
  • BEE Q1 – 10am , Passcode: 10895989
  • SGMS Q1 – 430pm , Password: SGMS

Friday, May 9

  • HLT Q1 – 10am , Passcode: 25981567
  • AHT Q1 – 11am


PENN – sent Argosy Sioux City employees a Worker Adjustment and Retraining Notification, or WARN, letter from the riverboat's owner, Belle of Sioux City.  The letter told employees the Argosy will close on July 1st.  Despite the issuance of the WARN letter, PENN continue to challenge the Iowa Racing & Gaming Commission's decision. 

Takeaway:  Sioux City should be in discontinued operations for Q2.


MGM – (Las Vegas Sun) Broke ground on LV Strip arena, which is behind Monte Carlo and NYNY casions.  The $350m project is expected to open Spring 2016.  Las Vegas Mayor Carolyn Goodman said the city is still in the hunt to build an arena downtown.  The city is negotiating with Cordish Cos. on that project.  The deadline for those negotiations is May 31.

Takeaway: Growth is non-gaming, unless young people suddenly start playing slots.


RCL – unveiled new promotion, "Buy One, Get One 50% off" on 2015-2016 cruises.  From May 1st through May 31st, 2014, residents of the United States and Canada can get 50% off the cruise fare of the second guests when booked in the same stateroom as a full-fare guest. The offer applies to new individual and named group bookings in all stateroom categories and sailings departing between January 1, 2015 and April 30, 2016, and excludes Quantum of the Seas and Anthem of the Seas, as well as third and additional guests. 

Takeaway:  This follows NCL's Buy one, Get one free deal earlier this week.  Still promotional in the Caribbean


Macau Gaming Revenues for April - the DICJ reported Macau April Gross Gaming Revenue for April 2014 totaled HKD30.406B (MOP 31.318B), up by 10.64% YoY but down 11.66% MoM.

Takeway: Not surprising as we commented on Tuesday of this week in our "WE'VE BEEN PLACEHOLDERED!" - we expected a positive revision and "double digit growth" for April which was not expected by investors. 


Pacquiao, a Macau Return -  Manny Pacquiao may return to Macau for another bout in Asia’s gambling capital near the end of the year. CEO Bob Arum plans to strengthen the pay-per-view market in China by bringing in more interesting fights, which could include a possible fifth fight between Pacquiao and Juan Manuel Marquez. Arum continue so shop a broadcast deal across Asian market.  In a twist of irony, by taking Marquez to Macau, Arum risks losing the Mexican and Latino market in Las Vegas but could appeal to the Filipino population as well as pay-per-view breakthrough in China.

Takeaway:  Given the public scrum between Arum and MGM"s Jim Murren, we are not surprised by a Team Arum and Pacquiao move to Macau as Murren's new promoter is Oscar Dela Hoya.  We expect Arum and Pacquiao to saddle up to Cotai Arena at Venetian Macao.


Northeastern Iowa Gaming - the Lac du Flambeau Chippewa Tribe voted to stop funding the proposed $132 million off-reservation casino project in Shullsburg Wisconsin. 

Takeaway:  As we pointed out in our Leisure Letter on March 21, 2014, located 28 miles from Dubuque, Iowa, the proposed Shullsburg casino would cannibalize BYD's Diamond Jo Dubuque and the Mystique Casino, while ISLE's Lady Luck in Marquette and Wild Rose Clinton (in Clinton) would likely experience some lost revenues as well. 


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.


TODAY’S S&P 500 SET-UP – May 2, 2014

As we look at today's setup for the S&P 500, the range is 29 points or 1.26% downside to 1860 and 0.28% upside to 1889.                            













  • YIELD CURVE: 2.21 from 2.21
  • VIX closed at 13.25 1 day percent change of -1.19%

MACRO DATA POINTS (Bloomberg Estimates):

  • 8:30am: Change in Nonfarm Payrolls, April, est. 218k (prior 192k)
  • Unemployment Rate, April, est. 6.6% (prior 6.7%)
  • 9:45am: ISM New York, April, est. 54 (prior 52)
  • 10am: Factory Orders, March, est. 1.5% (prior 1.6%)
  • 1pm: Baker Hughes rig count


  • House out of session, Senate TBA
  • President Obama meets with Germany’s Chancellor Merkel, holds joint press conf.
  • 1:45pm: Merkel attends U.S. Chamber of Commerce discussion of relationship between U.S., Germany
  • U.S. ELECTION WRAP: PAC to ‘End All Super-PACs’; Udall Politics


  • Pfizer raises AstraZeneca takeover offer to $106.5b
  • Pfizer-AstraZeneca deal may harm search for new medicines
  • Employers in U.S. probably added most workers in 5 mos.
  • Bayer said to be in exclusive talks for Merck consumer Unit
  • Berkshire to acquire SNC’s AltaLink in $2.9b Canada deal
  • Bank of America estimated excess legal costs drop to $5b
  • BofA cut Russia exposure in 1Q amid Ukraine tensions
  • BASF mulls U.S. investment of more than EU1b on shale gas
  • ParkerVision sues Qualcomm again in case that adds HTC
  • GM takes recall fight to familiar turf in bankruptcy court
  • XL to sell life reinsurer for $570m to GreyCastle
  • Euro-area manufacturing growth accelerates in April, unemployment rate holds at 11.8% in March
  • Yellen Testimony, Buffett Mtg, ECB, BOE: Week Ahead May 3-10


  • American Axle & Manufacturing (AXL) 8:00am, $0.40
  • Chevron (CVX) 8:30am, $2.52 - Preview
  • Cooper Tire & Rubber (CTB) 7:35am, $0.49
  • CVS Caremark (CVS) 7:00am, $1.04 - Preview
  • Dresser-Rand Group (DRC) Bef-mkt, $0.14
  • Estee Lauder (EL) 7:30am, $0.55 - Preview
  • Exelis (XLS) 6:15am, $0.33
  • Gildan Activewear (GIL CN) 7am, $0.63
  • Madison Square Garden (MSG) 7:30am, $0.40
  • Marsh & McLennan(MMC) 7:00am, $0.80
  • Newell Rubbermaid (NWL) 6:30am, $0.32 - Preview
  • Northwest Natural Gas (NWN) 6:00am, $1.44
  • Och-Ziff Capital (OZM) 7:30am, $0.16
  • Pharmacyclics (PCYC) 8am, $0.13 - Preview
  • Pinnacle West Capital (PNW) 8:30am, $0.13
  • Sempra Energy (SRE) 9am, $0.95
  • Spirit AeroSystems (SPR) 7:30am, $0.63
  • Telephone & Data Systems (TDS) 7:56am, ($0.31)
  • TransCanada (TRP CN) 8:30am, C$0.59 - Preview
  • United States Cellular (USM) 7:57am, ($0.41)
  • Vermilion Energy (VET CN) 2:10am, $0.94
  • WisdomTree Investments (WETF) 7:00am, $0.11


  • Mercuria Said to Offer Jobs to About 200 JPMorgan Traders
  • WTI Pares Weekly Loss Before Jobs Data; Brent Gains on Ukraine
  • California Doubles Oil-by-Rail Volumes as Canadian Imports Grow
  • Lime Costs Squeeze Margarita Makers Before Cinco de Mayo Parties
  • Copper Rises as Available Supplies Slump to Lowest Since 2008
  • Gold Premiums in India Jump as Auspicious Day Seen Luring Buyers
  • Wheat Heads for Third Weekly Gain as Drought Damages Kansas Crop
  • Cocoa Trades Near One-Month Low in New York; White Sugar Drops
  • Oil Trade Tracks Libya Cargo as Test of Nation’s Return: Energy
  • Macquarie CEO Says Commodities Business Acquisition Possible
  • Canada Learns China Oil Option No Easy Answer to Keystone Snub
  • EUROPE GAS: U.K. Front-Mo. Rebounds on Colder Weather, Ukraine
  • China Met Coal Restocking Puts Floor Under Met Coal: Bull Case
  • Mine Waste Transformed to Tap Water in Anglo Model: Commodities

























The Hedgeye Macro Team














I'm Boorish!

“He is illiterate and boorish; austere and offensive.”

-The Mercantile Agency, May 1853


In some of Americas most formative years of free market capitalism and innovation, the authorities of perceived wisdom wrote that about one of the greatest wealth creators in US history – Cornelius Vanderbilt.


His response:


It is said that I am always in opposition, and that the same spirit of resistance which has often hitherto governed my action has influenced it now… I have only to say that this is the same spirit which founded this great Republic.” (The First Tycoon, pg 161)


And that’s all the man needed to say about that.


Back to the Global Macro Grind


In this day and age, the more real-time market illiterate a politician is, the more offensive (to me at least) he becomes. Other than the brilliant financial market mind that is Maxine Waters, these characters are usually he’s by the way – we men think we know everything.


While I can’t comprehend how consensus economists are getting to a +3-4% US GDP ramp in the coming quarters, I guess I’ll just have to be all boorish for the next few months and reiterate how ridiculous the Old Wall’s linear forecasting process has become.


On a cheerier note, it’s jobs Friday! And while I am sure everyone wants to know what Steve Liesman has for his NFP guess, my boy, Mr. Bond Market, has already front-ran the entire circus:


  1. US 10yr Yield got smoked yesterday to 2.63%, taking it DOWN 40 basis points YTD! (consensus is still short Treasuries)
  2. US 10yr minus 2yr Yield (The Yield Spread, which is a growth proxy) compressed another 3bps day-over-day
  3. As our long bond position (TLT) ripped to fresh YTD highs, anything equities that looked like a bond did too

NEWSFLASH (to those waiting on the next qualitative “survey” from our competitors): Bonds rip when growth is slowing.


Anything that looks like a bond is called #YieldChasing (they’re ripping too):


  1. Utilities (XLU) up another +0.5% yesterday (with the SPX flat) to new YTD high of +14.3%!
  2. REITS (VNQ) punched another fresh YTD high too up at +13.5% YTD

As for the 80% of America that is going to eat both inflation and growth slowing:


  1. US Consumer Discretionary Stocks (XLY) are still down -4.1% YTD
  2. US Housing (ITB) is still sucking wind at -4.9% YTD

For the style-factor illiterate who gets on TV and says ‘but the market is up’ (even though both the Nasdaq and Russell are down YTD), in mathematical terms we call this risk developing underneath the US stock market’s hood SECTOR VARIANCE. In chaos theory speak, variance rises when major macro factors are undergoing the initial stage of what physics fans call a PHASE TRANSITION.


Phase transitions (like water approaching a waterfall) are really cool, because consensus doesn’t realize what’s happening a foot below the visible surface… Then kabooom! A proactively predictable point of entropy occurs. Variance, Phase Transition, Entropy – offensive terms for those who haven’t evolved their process = excellent defensive strategies for you to deploy.


If you want to consistently beat beta in this game, you have to know A) when to go on defense and B) how to rotate offensively from that defensive position. More commonly known as sector rotation, you get what I mean. Our process takes the sector rotation idea up another 10,000 feet because we go all cross-country-cross-asset-class on you.


At the beginning of Q2, on the long side here’s where we continued to rotate to (Investment Conclusions – slide 48 of our Q214 Global Macro Themes deck, which all of our Institutional Research customers can get an updated copy of anytime):


  1. Bonds (BND)
  2. Long-Term Treasuries (TLT)
  3. Gold (GLD)
  4. Agricultural Commodities (DBA)
  5. Utilities (XLU)
  6. REITS (VNQ)
  7. India (EPI)
  8. Brazil (EWZ)

No matter what this jobs report says today, we want you to keep doing more of this because A) it’s still nowhere in the area code of consensus and B) it’s working.


Instead of calling us bearish, bullish, or boorish, I say you call us flexible. This is the opposite position our process suggested you be in at this time last year. Having resistance versus a broken consensus isn’t easy. But being a capitalist in America today isn’t either.


Our immediate-term Global Macro Risk Ranges are now (12 macro ranges with a TREND overlay are in our Daily Trading Range product):


UST 10yr Yield 2.59%-2.70%

Russell2000 1106-1145

Nikkei 14156-14601

VIX 12.96-14.72

USD 79.31-79.91

Gold 1


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


I'm Boorish! - Chart of the Day

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May 2, 2014

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EHTH: 1Q14 Initial Thoughts

Takeaway: Initial thoughts on the quarter below. We will have a more detailed note out later today.


  1. NO IFP MEMBERSHIP GROWTH: Despite 145K approved members, EHTH only gained 4K net new members off a base of 796K.  The variance is attrition; EHTH lost 141K accounts (18% of its 4Q13 IFP Customers).  We believed attrition would be worse, but then again, EHTH’s reported membership metrics are purely a management estimate, so we have to take it for what it is.
  2. STRONG 1Q13 APPLICATIONS, BUT WILL DECLINE: 1Q14 Applications are comparable to 4Q13 (both very strong).  However, management suggested that IFP application volume will decline in both 2Q13 & 3Q13, consistent with our thesis, but may have taken some by surprise.  This also means EHTH’s 2014 prospects are tied to the flow-through of its 1Q14 applications to net IFP membership growth in 2Q14.
  3. 2Q14 IS A MIXED BAG.  We have to assume the attrition headwind will mitigate into 2Q14 since much of that was tied to forced plan cancellations that terminated at year end 2013.  Now the debate is whether EHTH lost members to the public exchanges from its limited ability to sell subsidized plans.  Given the size of the HHS enrollment figures, particularly toward the end of Open Enrollment, attrition is likely, but the magnitude is tougher to measure.
  4. EVALUATING THE SHORT POSITION: A 2014 Guidance cut seems more likely following the 1Q print, but we’re not sure that matters much at this point.  Sentiment around 2015-and-beyond growth could drive the stock higher, and we won’t have a catalyst to refute that till 3Q13 at the very earliest.  The closer we get to 2015, the less a 2014 guidance cut will matter. 


 If you have any questions, or would like to discuss further, let us know


Hesham Shaaban, CFA




April GGR finished up 11% owing to a big final 3 days. The placeholder strikes again.



As we wrote about in our Tuesday note, “WE’VE BEEN PLACEHOLDERED”, the last few days of April were likely to be volatile yet strong.  While the fundamentals remain solid, the strength in the numbers the past 3 days was probably due in part to an understatement of the prior week’s revenues.  That week sure looked like a “placeholder” week to us as reported table revenues totaled the recurring sum of exactly HK$5,425 million.


Daily table revenues for Monday, Tuesday, and Wednesday of this week averaged an estimated $HK1,210 million, up 34% from the disappointing prior “placeholder” week.  We saw this phenomenon occur with the big finish to March and the light last few days of January in addition to numerous other examples from prior years.





So what is the conclusion?  Based on sequential trends, our math suggested April should’ve been up 13-14% yet growth fell a little short at 11%.  However, we suspect a low hold percentage early in the month may have caused the slight shortfall.  All in all, it’s business as usual in Macau despite all the consternation.  We’re still expecting a big May that should keep the newfound positive momentum (since Tuesday) going on these stocks.  WYNN continues to look the best to us over the near term.

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