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LEISURE LETTER (05/14/2014)



Wednesday, May 14:

Wells Fargo Gaming Conference in Las Vegas (all times EDT)

• 12:05pm MCRI and MNTG

• 12:50pm MGM

• 1:35pm ISLE


• Atlantic City April Revenues

• Japan Gaming Conference thru Friday, May 16


Thursday, May 15

• Japan Gaming Conference thru Friday, May 16



  • PNK – CEO Anthony Michael Sanfilippo acquired 23,000 shares of the company’s stock on the open market in a transaction dated Friday, May 9th. The shares were purchased at an average cost of $21.99 per share, for a total transaction of $505,770.00. Following the completion of the transaction, Mr. Sanfilippo now directly owns 180,442 shares in the company.

Takeaway:  Could it have something to do with improving May trends? We're seeing it.

  • HOT – Sergio Rivera, Co-President of The Americas, sold 59,234 shares of Starwood Hotels & Resorts Worldwide stock on the open market in a transaction that occurred on Monday, May 12th. The shares were sold at an average price of $80.00, for a total value of $4,738,720.00. Following the completion of the sale, the insider now directly owns 42,871 shares in the company, valued at approximately $3,429,680.

Takeaway:  Hopefully, the company was on the other side of the transaction.

  • SHO – President John V. Arabia sold 140,000 shares of SHO stock on the open market in a transaction that occurred on Friday, May 9th at an average price of $14.27, for a total transaction of $1,997,800.00. Following the completion of the transaction, the president now directly owns 486,299 shares of the company’s stock, valued at approximately $6,939,487. 


GLPI – announced a very large $465 million acquisition of The Meadows Racetrack and Casino in Washington, Pennsylvania - subject to regulatory approval.  Based on the ~9x 2013 EBITDA = $52 million EBITDA. 

Takeaway:  This is a large acquisition and should silence the naysayers. However, the purchased is expected to be funded with the issuance of new equity (we estimate 8 million shares) and debt. While accretive to estimates and overall a positive, the pending equity issuance could create an overhang on GLPI stock.


PENN – announced that Argosy Sioux City General Manager Lance George has been named general manager at the new Plainridge Park Casino in Plainville, Mass. The 106,000-square-foot racing and gaming facility, featuring live harness racing and simulcasting and 1,250 slot machines, is scheduled to open in 2015.

Takeaway: Now seems like a reasonable conclusion that the property will be closing sooner (June 30th) rather than later. 


RCL (Hostelur) Pullmantur confirmed its Sovereign ship will be moved to Marseille in the coming days to undergo repair work.  Sovereign had encountered an engine failure that caused a reduction in navigation speed.  Pullmantur will reimburse all cruise costs and a 60% discount on the next cruise.

Takeaway:  A couple more small incidents like this will materially impact yields.


Blue Star Line (Travel Pulse) Titanic II: 'Ship of Dreams' Comes Closer to Reality

Blue Star Line said it has signed memorandum of understanding appointing China’s AVIC as its latest Titanic II project partner. AVIC will promote the Titanic II project and coordinate Titanic II sponsors from mainland China. CSC Jinling Shipyard, a Chinese shipyard where Palmer currently builds cargo vessels for his Australian mining interests, will build the new ship.  The 1st project development phase has been completed.  The ship's source market is China and is scheduled for deployment in 2018.

Takeaway:  This joke ship may be built after all


NCL  – (Channel 5 Belize) Minister Hulse shocked by thumbs down given to NCL project

The multi-million dollar Norwegian Cruise Lines tourism project in southern Belize has been all but given a green light by the Government of Belize.  But government’s approval is not the same thing as welcoming arms everywhere. The Belize Tourism Industry Association has filed a lawsuit against the Government of Belize, and there is word that the Placencia Village Council has unanimously voted against the project.

Takeaway:  Relatively small project running into complications


Macau Gaming - Macau casinos will be handed a deadline of July 1, 2014, to eliminate illegal China UnionPay mobile swipe card devices or face a crackdown on the city's multimillion-dollar illegal cash-transfer business.

Takeaway: We doubt the casinos currently have "illegal" mobile swipe devices on their gaming floors given all the news leading up to this pronouncement as well as the operators wanting to maintain a clean image heading into concession renegotiations. 


Hotel Transaction - RIU Hotels & Resorts will acquire a luxury 252 room hotel in the French part of the Caribbean island of St. Martin for $45 million and then rebrand the property Rui Palace St. Martin.  Average price per key: $179k.

Takeaway: Seems like a reasonable price without knowing the amount of additional capex investment and expected ADR under the RIU flag. 


Ski Industry – Dick Bass announced he sold a majority interest in the Little Cottonwood Canyon (owner of Alta and Snowbird) resort to Ian Cumming, a businessman familiar with Utah’s ski industry since his family owns Park City Mountain Resort (PCMR).  Depsite the change in ownership, the company is proceeding with plans to break ground in July on the two-year Hidden Peak project, to build more biking trails on the mountain, and to renovate the Snowbird Center and Cliff Lodge.

Takeaway: We find it very interesting that neither publicly traded ski resort company (MTN nor SNOW) were the buyers.  Given PCMR's ongoing litigation with Vail over management of Canyons Resort, the PCMR angle may have just become more interesting.


European travel – (Hostelur) 54% of Europeans plan to travel during summer vacation this year, flat YoY.  This was an improvement from the previous two years, which recorded declines.  Average budget for the summer holidays is stable, with the UK leading the way.  

Takeaway:  Steady is usually a good sign for the leisure industry, especially in Europe


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.

Teaching Americans a Policy Lesson

Client Talking Points


The 10-year yield smoked to fresh year-to-date lows 2.57% on a #ConsumerSlowing Retail Sales (24% of GDP) report for April (newsflash, it wasn’t just the February weather). Buy either inflation or slow-growth-yield-chasing, not high multiple growth stocks, IWM, QQQ.


It’s a tasty morning for the #InflationAccelerating theme as oil (both Brent and WTI) confirm a TREND breakout to the upside and Gold makes another higher-lows after holding Hedgeye TREND support of $1,271.


Interesting morning for Europe as Scottish employment hits its best level since 1992 on #StrongPound, but the 2014 leaders in European Equities lag (Portugal -1.7%, Italy -0.3%, making lower-highs too). Is this as good as the news gets? Sell in May? Meanwhile, Bank of England Governor Mark Carney is teaching Americans a policy lesson – let a currency strengthen and an economy does alongside it.


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


After closing down almost 1% yesterday, Russell 2000 is -7.2% since March #GrowthSlowing @KeithMcCullough


"The way to get started is to quit talking and begin doing." - Walt Disney


Unemployment in Scotland fell by 18,000 to 178,000 between January and March while employment reached its highest level since records began in 1992. The jobless rate was 6.4%, which was below the average of 6.8% for the whole of the UK. (BBC)

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Truth and Good?

“Today, I want to tell you about an investment opportunity with potential high cash flow, a superior structure, a unique sharing agreement, and low risk.” 1983 Prudential-Bache Energy Income Fund marketing video

Between 1983 and 1991 Prudential-Bache Securities raised $1.4 billion from the sale of 35 “energy income fund” limited partnerships to more than 130,000 individual investors.  The yield chase was on as interest rates fell in the wake of the early ‘80s inflation scare, and Wall Street was eager to fill the demand with new products that commanded high fees and commissions.  Prudential-Bache brokers touted the limited partnerships to their retail clients as high-yielding, tax-advantaged, low-risk investments…


Truth and Good? - kevpru


Of course, what seems too good to be true proved to be just that.  By the late ‘80s distributions began to trail false promises as hefty fees ate into the income and asset values fell.  Some of the partnerships borrowed money to maintain the payouts, but it wasn’t a sustainable solution.  Eventually, most of the partnerships slashed distributions and collapsed.


In the class action lawsuits that followed, the plaintiffs alleged that Prudential-Bache “misrepresented and omitted material facts concerning cash distributions to investors by creating the appearance that the partnerships were distributing monies derived from operating income when in reality the distributions were returns of capital…




I traveled to Omaha, Nebraska two weeks ago to pitch the bear case on Master Limited Partnerships to a group of value investors.  Buffett couldn’t fit me into his schedule, but I was lucky enough to meet with seasoned money managers cut from the same cloth. 


These guys understood the MLP basics – tax-exempt energy companies with high current yields, etc. – but not much more.  So I walked through a few of the more surreptitious aspects of the story: the enormous “incentive” fees that many MLPs pay to their General Partners; the conflicts of interest and limited fiduciary duties; the gimmicky accounting; the serial capital raising; and the valuations.


I was showing the group how, since its inception, retail-favorite LINN Energy (LINE) has lost more than $1.4 billion while paying out $3.1 billion in distributions, when a salty Australian in the back blurted out, “The whole thing seems like a big Ponzi scheme to me.”  I shrugged, “My compliance officer doesn’t let me use that word.”


MLPs are essential to the build-out of energy infrastructure that’s needed to support the recent US hydrocarbon production boom – the story is real – but that doesn’t mean all will profit.  The building of the American railroads in the late 19th century was ripe with self-dealing and stock schemes.  James Surowiecki of “The New Yorker” called it, “one of the biggest cons the country has ever seen, with huge losses for investors and huge fortunes for the moguls.  Still, we ended up with a national transportation system.”


It’s been said that there are no new eras, only new errors – most things in finance are cyclical.  We look at the fees that some of the largest MLPs are paying to their GPs today and wonder if this time will be different.  How long can a business that pays two-thirds of its income to its manager survive?

It’s a unique instance of information asymmetry.  MLPs are mostly owned by retail investors – not surprising given the exorbitant fees that they hand over to the wealthy individuals and institutions that own their GPs.  A well-informed investor is unlikely to give his money to a hedge fund manager who defines his own performance, collects a 50% performance fee, and owes limited fiduciary duties to his investors.  Would you invest in that fund?  I hope not.  Giving your money to that hedge fund is a liability, but with the Alerian MLP Infrastructure Index currently trading at 2x the earnings multiple of the S&P 500 (see the Chart of the Day below) despite lower returns on equity (~8%) and higher leverage (~42% debt/capital), that’s still way out-of-consensus.


But we’re OK with that.  It’s a lonely view but we’re not contrarian merely for the sake of it – there’s ample justification for being negative on certain MLPs, and perhaps the timing is right as we enter the later innings of the US infrastructure growth boom, and the Federal Reserve weans markets off of the morphine drip.


Over the past year, we’ve expressed this view with reasonable success with negative calls on the E&P MLPs (most notably, LINN Energy), Kinder Morgan Energy Partners (KMP), and Boardwalk Pipeline Partners (BWP), while the MLP indices marched to new all-time highs.  Our most recent work delves into the numerous issues of Atlas Energy LP (ATLS) and its limited partnerships (ping to see that research).  In the first conference call after we published our note, one Atlas executive declared that because his stock has not fallen, “Truth and good have prevailed!” 


Of course, I’m the bad guy.  Well, for now at least…


Kevin Kaiser

Managing Director


Truth and Good? - Chart of the Day


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 2.56-2.65%


RUT 1094-1133

VIX 11.99-14.32

Pound 1.67-1.69

WTIC 100.85-102.81

Gold 1 


"Tweet Tweet" Tomasso

This note was originally published at 8am on April 30, 2014 for Hedgeye subscribers.

“It's just a job. Grass grows, birds fly, waves pound the sand. I beat people up.”

- Muhammad Ali


As a youngster growing up in southern Alberta, I was an enthusiast of Stampede Wrestling.  Back in those days, before World Wrestling Entertainment began to dominate, professional wrestling was split into territories and Calgary-based promoter Stu Hart was recognized as one of the top promoters in the field.   He had many colorful wrestlers in his stable, but one of the more interesting was Joe “Tweet Tweet” Tomasso.


Tomasso was a scrappy Italian from Hamilton, Ontario. He earned his nickname “Tweet Tweet” for talking about his imaginary pet bird (incidentally, he also spoke with a pirate’s accent).  Tomasso had decent success in the ring and shortly before his retirement, the famed Stu Hart said, “He was an indestructible little bastard.”  High compliments from the Canadian godfather of wrestling to a small undercard wrestler like Tomasso.

"Tweet Tweet" Tomasso - twtr 

Speaking of imaginary tweets, Twitter (TWTR) reported earnings last night after the close.  While the $250 million in quarterly revenue suggests the business model isn’t a total façade, the fundamental sell call we’ve been making on Twitter is playing out in spades with the stock down over -11% this morning to a new 52-week low. 


(Our internet analyst Hesham Shabaan reiterated his thesis in this video.)


A few key takeaways from the quarter:

  • User Growth: Decelerated sequentially.  US was up 19% y/y vs. 20% in 4Q13.  Global up 25% vs. 30% in 4Q13.  Int’l slowed to 27% vs. 34% last quarter.
  • Engagement (timeline views/user): Decelerated globally, decline moderated in the US (-2% vs. -5%), deteriorated in int’l (-10% vs. -2%).  Users gravitating toward Tweetdeck will remain a secular headwind.
  • Guidance: 2Q14 revenue of $270-$280 vs. consensus of $272.  Raised 2014 range by $50M to $1.20B-$1.25B, ahead of the beat on 1Q guidance.

The best way to describe the Twitter quarter is Shakespeare’s oft used expression, “expectation is the root of all heartache.”  At more than 20x this year’s market cap to revenue, Twitter’s expectations were high, indeed.


"Tweet Tweet" Tomasso - 777


Back to the Global Macro Grind...


Staying on the stock specific side our wily veteran and head of Retail research Brian McGough is adding Target (TGT) to our Best Ideas list as a sell in a conference call today at 11 a.m. EST.  According to McGough:


“The crux of our argument? Wall Street's perception of Target's financial trajectory is more upbeat than Main Street. When the stock glossed over the company's weak 4Q earnings report, it was because Steinhafel (CEO) issued guidance that he hoped the company would grow into if the Company repaired its reputation after the data breach - not guidance that he knew TGT could meet or beat. We don't think that the Street is giving TGT credit for a) a miss this year, and b) another one in 2015.  The reality is that when a customer has a great experience in retail, they tell a friend. When a customer has a bad experience, they tell 20. Just ask JC Penney or Lululemon. Some of these 'fire your customer' events are worse than others, but there's one commonality - they take a very long time to recover.”


If you don’t currently subscribe to our Retail research and would like details on how to access the call, please email sales@hedgeye.com.


Keith was off seeing clients in the Midwest the last couple of days and, despite getting in late last night, hit us and subscribers on the “Direct From KM” list with some key thoughts this morning...


Buy in May, and pray? Not on the US consumer, social bubbles, or housing stuff – no thank you!

  1. Month End – as the Ides of April come to a close, US Consumer (XLY) and Financials (XLF) lead losers at -1.8% for APR, whereas slow-growth-yield-chasing (Utilities) XLU = +4%; if buying inflation and slow growth ain’t broke, don’t fix i
  2. #Bubbles – the WSJ is “cautious” on Twitter (TWTR) now – thanks for coming out. TWTR, YELP, and FB remain in Bearish Bubble Formations @Hedgeye!
  3. US Housing – nasty weekly mortgage demand print this morning out of MBA (total, purchase + refi, index) slammed for another -5.9% loss after last week’s -3.3% drop – Rates Down = Demand Down – Janet? Our Q2 Macro Theme of #HousingSlowdown remains intact

On the last point of housing, D.R. Horton, one of the nation’s largest homebuilders, recently announced they will build homes in the price range of $120,000 to $150,000.  This appears to be a reaction to the obvious, which is that housing demand is tepid at best, and more aptly anemic for first time buyers.  In fact, in February first time home buyers account for a mere 28% of purchases, which is the lowest level since October 2008 (the veritable apex of the financial crisis).


Not that we need more confirmatory data points, but U.S. MBA mortgage applications index came out this morning and showed applications down -4.4% for the most recent week and the total market index down -5.9%.  This compares to -2.6% and -3.3% respectively in the prior week and is obviously a deceleration. 


As mortgage applications go so goes housing demand and ultimately home prices.   As home prices continue to stagnant or decline, it will be increasingly likely that the almighty Federal Reserve continues to be one of the more globally accommodating central banks, which will be negative for the dollar but continue to drive commodity prices higher.  Reflexivity anyone?


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


SPX 1858-1885

Russell2000 1101-1155

UST 10yr Yield 2.63-2.73%

VIX 13.03-14.72

EUR/USD 1.37-1.39
Brent 108.02-110.67


Keep your head up and stick on the ice,


Daryl G. Jones

Director of Research


TODAY’S S&P 500 SET-UP – May 14, 2014

As we look at today's setup for the S&P 500, the range is 28 points or 1.29% downside to 1873 and 0.19% upside to 1901.                                                













  • YIELD CURVE: 2.21 from 2.23
  • VIX closed at 12.13 1 day percent change of -0.82%


MACRO DATA POINTS (Bloomberg Estimates):

  • 7am: MBA Mortgage Applications, May 9 (prior 5.3%)
  • 8:30am: Producer Price Index, April, est. 0.2% (prior 0.5%)
  • PPI Ex Food and Energy, April, est. 0.2% (prior 0.6%)
  • 10:30am: DOE Energy Inventories



    • House in recess; Senate in session
    • SEC Commissioner Piwowar among participants at Sifma Market Structure Conference in New York
    • Peterson Foundation Fiscal Summit: Sen. Budget Cmte Chair Patty Murray, fmr Fed Chairman Greenspan, Fmr President Bill Clinton, N.J. Gov. Chris Christie, among participants
    • 2pm: SEC Chairwoman Mary Jo White, acting CFTC Chairman Mark Wetjen on financial mkt oversight at Sen. Appropriations panel
    • 2:15pm: President Obama’s nomination of Sylvia Burwell as HHS secretary under consideration at  Senate Finance Cmte hearing
    • 5:15pm: U.S. Trade Rep. Michael Froman speaks at “Politics of Global Trade” conference at Bloomberg HQ
    • U.S. ELECTION WRAP: Jany Out in Fla.; Conyers Not Qualified



  • Fortress said to be preparing $4.7b Stuyvesant Town bid
  • U.S. said to seek $3.5b from BNP Paribas on Sudan, Iran deals
  • TPG preparing American Tire for IPO: Reuters
  • Obama orders sanctions over Central African Republic fight
  • Boeing wins $3.8b 737 order amid China travel boom
  • Wheeler riles Jello Biafra as FCC sets Internet-fast lane vote
  • China central bank calls for faster lending in slump
  • Sony unexpectedly forecasts loss amid PC restructuring costs
  • MSCI semiannual index review after 5pm NY time: Preview
  • ASCO conference summaries release at 5pm: Preview
  • David Tepper speaks as SALT conference opens
  • President Obama speaks on infrastructure in New York



    • B2Gold (BTO CN) 6:30am, $0.02
    • Coty (COTY) 6am, $0.09
    • Deere (DE) 7am, $2.49 - Preview
    • EZchip Semiconductor (EZCH) 8am, $0.32
    • GasLog (GLOG) 6:02am, $0.16
    • Hanwha SolarOne Co (HSOL) 6am, NA
    • Kate Spade (KATE) 7:34am, ($0.04)
    • Macy’s (M) 8am, $0.60 - Preview
    • Pinnacle Foods (PF) 8:15am, $0.35
    • Plug Power (PLUG) 7am, ($0.05)
    • SodaStream (SODA) 7:30am, $0.17
    • Springleaf Holdings (LEAF) 7:30am, $0.43



    • Acxiom (ACXM) 4:05pm, $0.20
    • Agilent Technologies (A) 4:05pm, $0.73
    • Cisco Systems (CSCO) 4:05pm, $0.48
    • Eagle Materials (EXP) 4:15pm, $0.50
    • Jack in the Box (JACK) 4:01pm, $0.52
    • NetEase (NTES) 5pm, $1.42
    • Osisko Mining (OSK CN) 4:32pm, C$0.08
    • Real Goods Solar (RGSE) 4pm, ($0.11)
    • RMP Energy (RMP CN) 4:05pm, C$0.08
    • SeaWorld Entertainment (SEAS) 4:01pm, ($0.49)
    • Vipshop Holdings (VIPS) 4:01pm, $0.46
    • WuXi PharmaTech Cayman (WX) 4:30pm, $0.39



  • Silver Fixing Company Will Stop Running Benchmark on Aug. 14
  • WTI Rises for Third Day as Cushing Stockpiles Drop; Brent Gains
  • Palm Exports From Indonesia Rising to Four-Month High on Ramadan
  • Goldman Says Commodities Retain Appeal as World Economy Recovers
  • Palladium Advances to Highest Since August 2011 as Gold Gains
  • Nickel Retreats After Six Days of Gains as Rally Seen Excessive
  • Wheat Extends Slide From 14-Month High on World Supply Outlook
  • Sugar Extends Gain to Two-Month High in London; Coffee Declines
  • Steel Rebar Closes Near Record Low on China Mortgage Loosening
  • Coal Export Foes in U.S. Look to Clean Asia’s Backyard: Energy
  • Russian Slowdown to Shield Europe From Ukraine Gas Cuts
  • Carbon Volatility Jump Hastens Trading Retreat: Chart of the Day
  • China Nickel Ore Imports Plunge 59% Following Indonesia Ban
  • Keystone Delays Are Fueling Push for Canada Eastern Oil Pipeline

























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.