• run with the bulls

    get your first month

    of hedgeye free


LEISURE LETTER (06/12/2014)

Tickers: 0027:HK, MGM, RCL, WYN


  • Thurs June 12: Bally Systems User Conference Mohegan Sun
  • Thurs June 12: Blackstone Investor Day 
  • Thurs June 12: AC May revs released 2pm
  • Wed-Thurs June 18-19:  Hedgeye Cruise survey (pre-CCL F2Q)
  • Thurs June 19: LA May revs released


Galaxy Entertainment Group 0027:HK – on April 8th of this year, the Company applied for trademark registration for ‘Broadway Hotel and Casino,’ ‘Broadway Casino,’ ‘Broadway Hotel,’ ‘Broadway,’ ‘Broadway Resort’ and ‘Broadway Cotai.’ That application was only published in the Official Gazette on June 4. It is widely believed, if granted, Galaxy will use the "Broadway" name for Phase 2 of Galaxy in Cotai that is scheduled to open in 2015.

Takeaway: Seems like an interesting marketing spin, especially since SCL markets the foreign locations via Venetian and Parisian, why not Broadway? 


MGM (McClatchy Tribune) the Massachusetts Gaming Commission voted unanimously to allow MGM Resorts build casino in Springfield.  The Commission will meet for a final vote and award tomorrow, Friday June 13th.  MGM Springfield is planning 3,000 slot machines, 100 table games, 250 hotel rooms and eight restaurants.  The gaming commission indicated that it was willing to be flexible on the actual date it awards the casino to prevent triggering an estimated $200 million in fees and construction obligations that could be undermined by a petition drive to scuttle casinos in Massachusetts.

Takeaway:  This case is going MGM's way as we wait for the final wording on the fee payment conditions.


RCL – announced new entertainment offerings for Quantum of the Seas with a focus on music and executed through a "futuristic, technology-driven approach" which will include a unique Drum wall of 136 drums, a vocal percussion jacket, a violin dress as well as the world's largest harp plus the Broadway show, Mamma Mia!

Takeaway: A unique way to appeal to and increase the younger demographic


WYN – CEO Geoffrey A. Ballotti sold 3,899 shares of stock on Monday, June 9th at an average price of $75.00 and now directly owns 107,771 shares.

Takeaway: Still more insider selling in the hospitality industry.


Japan Gaming Expansion (Reuters) earlier today, a Japanese opposition politician on Thursday submitted a set of demands to ruling party lawmakers who are proposing a bill to legalize casino gambling, pushing back much-awaited parliamentary debate to next Wednesday at the earliest. Pro-casino lawmakers had aimed to begin debate in the lower house this week - before the end of the regular parliament session on June 22 - and carry the bill over into an expected session in the autumn when they would aim for its passage.

Takeaway: More political talk to reduce hype over passage of casino bill this year.


Macau Airport – the airport operator, Macau International Airport Co Ltd, posted results for 2013, which included a 12% increase in total passengers to 5,027,170 and 48,950 aircraft movements.

Takeaway: A long term positive mostly driven on incremental low-cost carrier route additions.


Singapore May negative REVPAR (STR) - preliminary numbers show Singapore May REVPAR declined 1.3% YoY in May.

Takeaway: Singapore continues to operate in a tough demand environment


China May New Loans - May new Yuan loans were CNY870.8 billion versus consensus expectations of CNY750 billion and CNY774.4 billion in April.

Takeaway: On the margin, a positive.


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.


Retail Callouts (6/12): LULU, TGT

Takeaway: Chip’s comments likely were directed at a Board that fired his choice CFO. TGT dividend hike very ill-timed – should have waited for CEO.



LULU - lululemon athletica inc. issues statement



  • "The lululemon Board of Directors and management team have been consistently focused on enhancing shareholder value and will continue to take actions to achieve this objective. The Board's commitment to the value and reputation of the lululemon brand and the constant focus by the Board and management on the Company's mission and core values is critical to enhancing long-term shareholder value."
  • "The Board is overseeing lululemon's strategy to strengthen the Company's foundation, focus its product engine on innovation, and accelerate sustainable and controlled global expansion. By leveraging its design-led roots, strengthening its supply chain and providing an exceptional guest experience, we are confident that lululemon, under new CEO Laurent Potdevin's leadership, will provide guests with the high-quality, technical products they know and love and create value for shareholders."
  • "Contrary to Mr. Wilson's assertions, lululemon's Board members are aligned with the Company's core values and possess the necessary expertise to successfully lead lululemon forward."


Takeaway: Something caused Chip to fly off the handle - odds are it was the Board's decision to push Currie out the door. This is still very much Chip's management team and there's no doubt he hand picked Potdevin as the new CEO. The management team in place may be good enough for a company doing $1bil in revenues, but we question how it could manage a $4-$5 billion business. If this is the case and the Board is pushing for real change - then this is a name that we can get behind.


TGT - Target Corporation Declares Regular Quarterly Dividend



  • "The board of directors of Target Corporation has declared a quarterly dividend of 52 cents per common share. The dividend is payable September 10, 2014 to shareholders of record at the close of business August 20, 2014."


Takeaway: Not a huge surprise that TGT increased its dividend. For now the company's cash priorities are as follows: 1) invest in the business, 2) support the divided, and 3) fund share repo. But it's hard to get behind TGT's use of cash with a shadow executive committee in the C-Suite. When a new CEO is hired, he's going to have his own plan on how to fix the business and it will be expensive. And, its not like this company isn't levered. It would probably be more prudent for the company to tighten the purse strings in anticipation of big changes to the organization. No CEO who will be in spending mode will ever want to inherit a recently (and significantly) increased dividend. Not a prudent decision by the Board.




TGT - Target Shareholders Back Board



  • "Despite a call last month from advisory firm Institutional Shareholder Services to oust seven of the company’s 10 directors, the full board was reelected at the company’s annual meeting in Dallas Wednesday. Shareholders also voted down a proposal requesting the board have an independent chairman and approved a proposal to revise compensation packages."


BEBE - bebe stores, inc. Announces CEO Transition



  • "Bebe stores, inc. today announced that Steve Birkhold has resigned as Chief Executive Officer of bebe stores, inc. effective today. Concurrently, the Board of Directors has appointed Jim Wiggett, currently Chief Executive Office of Jackson Hole Group, as Interim Chief Executive Officer of bebe. "
  • "Mr. Wiggett has been providing advisory services to the Company for the past five years. He joins the bebe team with close to 40 years of retail, merchandising, and business experience. Prior to founding the Jackson Hole Group, a strategic consulting group, Mr. Wiggett held a number of executive positions, with several high-profile companies, most recently Moet Hennessy Louis Vuitton (LVMH). As Executive Vice President at LVMH, Mr. Wiggett provided leadership to the 10 operating companies within the Select Distribution Group and consulting support to many of the non-retail organizations."


NKE, UA, ADS.DE - Sports Apparel Market Expects Uptick From World Cup



  • "Much like the players on the pitch, Adidas, Nike and Puma will be flexing their marketing muscles and competing for excellence and visibility, each in their own way. 'Brazil is an $11 billion [sports apparel] market, the fourth largest in the world, following the U.S., China and Japan,' said Alexis Frick, a researcher with Euromonitor International, adding that over the past few years the country has experienced a growth rate of 14 percent, 'something developed countries can only dream of.' No surprise then that for global sports brands, Brazil, with an estimated population of 200 million, is a strategic battleground, 'and football presents the largest opportunity.'"


PVH - PVH Corp. Licenses Warner's, Olga Brands



  • "PVH Corp. has signed a licensing agreement with Vandale Industries Inc. to design, produce and market women’s shapewear, sleepwear, loungewear, robes, sports bras and athleticwear for the U.S. and Canadian markets bearing the Warner’s and Olga intimates nameplates. The deal includes subbrands Simply Perfect by Warner’s, Blissful Benefits by Warner’s and Body Heaven by Warner’s."
  • "The license runs through 2017. Deliveries of these product categories are scheduled to begin in February for spring."


EBAY - EBay Launches Full-Price Designer Shops



  • "EBay Inc. is cozying up to designer brands — and trying to shed once and for all the lingering perception that it’s just an auction site."
  • "The e-commerce and payment giant will today unveil Designer Collective at ebay.com/designercollective, a current-season, full-price shopping destination with 16 American-based brands, including Calvin Klein, Nicole Miller and Elie Tahari. EBay worked with the brands to build storefronts within the Designer Collective portion of its main Web site."



Client Talking Points


We repeat the front month VIX has never held below 10 – NEVER is a very long time. Watch that line of complacency. If you take a look at the long term chart of the VIX this morning you will see what we mean. The last time the VIX hit this level was actually January of 2007. Thereafter, volatility made a steady climb before peaking in October 2008 at ~60.


Oil price is ripping to the upside. What you have is called TAIL risk to the upside and TAIL risk to the downside on U.S. growth. Our immediate-term risk range for WTIC Oil is 103.21-105.67, we remain bullish trend.


Fantastic news in India regarding their success with rate hikes. Inflation is under control. India had the only stock market that was really up. Strong currency, strong policy equates to stronger policy and stronger consumption.

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.


Legg Mason reported its month ending asset-under-management for April at the beginning of the week with a very positive result in its fixed income segment. The firm cited “significant” bond inflows for the month which we calculated to be over $2.3 billion. To contextualize this inflow amount we note that the entire U.S. mutual fund industry had total bond fund inflows of just $8.4 billion in April according to the Investment Company Institute, which provides an indication of the strong win rate for Legg alone last month. We also point out on a forward looking basis that the emerging trends in the mutual fund marketplace are starting to favor fixed income which should translate into accelerating positive trends at leading bond fund managers. Fixed income inflow is outpacing equities thus far in the second quarter of 2014 for the first time in 9 months which reflects the emerging defensive nature of global markets which is a good environment for leading fixed income houses including Legg Mason.

Three for the Road


$LULU CFO is out. I couldn’t care less what the comp is. This is so positive. What a great event to get more bullish on.



“Order and simplification are the first steps towards mastery of a subject”

-Thomas Mann


The World Cup has been held every four years since 1930 with the exception of 1942 and 1946, when it was canceled because of World War II. This will be the 20th World Cup.

get free cartoon of the day!

Start receiving Hedgeye's Cartoon of the Day, an exclusive and humourous take on the market and the economy, delivered every morning to your inbox

By joining our email marketing list you agree to receive marketing emails from Hedgeye. You may unsubscribe at any time by clicking the unsubscribe link in one of the emails.

Pay It Forward

“For of those to whom much is given, much is required.”

- President John F. Kennedy


Last night Keith and I took a private car service into Manhattan to watch the New York Rangers play the Los Angeles Kings in the fourth game of the Stanley Cup Finals.   Clearly, given such an experience, there is no doubt we are among the fortunate in this fine nation.


While most of you that are reading this have worked hard to achieve your position, we have all also received a helping hand along the way.  That helping hand may have been from a mentor, from a coach, or just being born somewhat lucky.  But, regardless, we all now have the opportunity to give back.


In the spirit of #PayingItForward, Hedgeye has formed a non-for-profit called Hedgeye Cares, which will be dedicated to giving back to charities in Connecticut.  Our inaugural event will be the 2014 Hedgeye Cares Golf Challenge to be held on September 16th at the Great River Golf Club in Milford, CT.   The proceeds from this event will go to Bridgeport Caribe Youth Leaders (BCYL).

Pay It Forward - Pay it forward chart1

BCYL is non-profit based in Bridgeport, CT, one of the more economically disadvantaged cities in Connecticut, and provides athletic and enhanced educational opportunities to youths aged 5 to 18 to whom much has not been given.   Currently, the program provides opportunities for some 500 kids in the Bridgeport area and we will be focused on expanding that number.


We hope you will consider joining us for a golf outing on September 16th and if you aren’t a golfer and or cannot make the event, we hope that you will consider sponsorship or auction donations and join us in #PayingItForward.  Details can be found here.


Back to the Global Macro Grind...


Speaking of giving, the Kings actually gave the Rangers a fighting chance last night by losing 2 -1, so the Stanley Cup Finals return to the City of Angels this Friday.  On some level, the Rangers have already exceeded expectations by winning last night.  Specifically, of the 320 NBA, MLB or NHL teams that have found themselves up 3 – 0 in a seven game series, 65% have gone on to win the next game and close out the series.


In terms of coming back and winning the entire series from a 3 – 0 deficit, it has only happened four times in 171 opportunities in the NHL.  For you math geeks, that equates to right around a 2.3% chance of overcoming a three game deficit.  So is a comeback probable? No. But as they say, hope springs eternal.


Speaking of probabilities, as equity investors we can be pretty sure that volatility on the SP500, as measured by the VIX, won’t stay below 11 for long.   Pull back a long term chart of the VIX on your Bloomberg this morning and you will see what we mean.   The last time the VIX hit this level was actually January of 2007. Thereafter, volatility made a steady climb before peaking in October 2008 at ~60.


So as investors, feel free to bet that VIX will go lower from here, but practically that is about as likely as Iran, Honduras, or Costa Rica winning the World Cup.  According to Oddshark.com, the odds on that are more than 1500 – 1.  Math doesn’t always work, just ask California Chrome, but over time life is much simpler when we play the odds.


Speaking of odds, the likelihood is high that many of us wouldn’t have bet on a Eurozone Industrial production number that came in well ahead of expectations this morning.   According to my colleague Ben Ryan:


“Industrial Production printed much stronger than expected (five-month high) for April with strength in energy and non-durable goods production which increased +2.5% and +2.1% respectively. Month-over-month, seasonally-adjusted industrial production increased +0.8%, beating expectations of +0.5%. Note that March was downwardly revised to -0.4%, so April’s increase follows a pretty bad number."


Following a bad number or not, that is the kind of number that we macro analysts underline with a big green highlighter (green being bullish) in our notebooks.


Even as European data continues to get better on the margin, we remain cautious, to say the least at current VIX levels, on the U.S. economy.  In the Chart of the Day, we’ve highlighted our U.S. GDP summary table going back two years to March 2012.


The key takeaway from this table is that healthcare spending was critical in supporting GDP in the 1st quarter.  With the census bureau’s release of the 1Q14 QSS survey yesterday, that estimate of healthcare spending saw a sharp negative reversal. 


According to my colleague Christian Drake:


Services consumption was the singular source of strength in the 1Q14 GDP report and most of that was from Healthcare Services which contributed +1.01% to GDP – that estimate of accelerating healthcare consumption just got revised to negative growth which will take the final GDP estimate for 1Q down to -2.0% plus or minus. 


The net-net of this is that the final estimate of 1Q GDP (June 25th) will be (even more) dismal and GDP is likely to miss the ever bullish consensus expectations for full year 2014.  When combined with increasing uncertainty in the 2014 mid-term elections, see Eric Cantor, we may just have an opportunity for you equity bears to #PayItForward in the coming months.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 2.44%-2.67%


RUT 1138-1178

VIX 10.74-13.34

USD 80.31-80.95

Gold 1 


Keep your head, stick on the ice and belief in the Rangers,


Daryl G. Jones

Director of Research 


Pay It Forward - chart of the day


Pawning UnionPay out of the casinos



There has been a lot of speculation that the Macau Government wants UnionPay retail outlets off the casino floors.  When the UnionPay issue surfaced last month we had heard that a couple of casinos moved those shops in to lobby and mall areas.  Recently, Bloomberg reported that the Macau Monetary Authority (MMA) actually notified the shops individually that they need to move by July 1st.  The only confirmation of this came from SJM CEO, Ambrose this week.


As you can see from the following chart, most of the big casinos maintained UnionPay retail outlets on their casino floors with the exception of Wynn Macau and MGM.  SJM’s Grand Lisboa apparently removed the UnionPay logos from pawn shops located on the casino floor.  It should be noted that Grand Lisboa offers a number of UnionPay options all around the casino.  This should be the model going forward.




Aside from the minor inconvenience, there shouldn’t be a major impact to the casinos’ GGR should the pawn shops be forced off the casino floor.  Wynn Macau and MGM should experience no impact, presumably.  Plenty of UnionPay options will remain and unless the MMA forces UnionPay completely out of the buildings, we see little sustainable impact from the rumored restrictions.  We believe the likelihood of a UnionPay ban altogether as very unlikely.

Early Look

daily macro intelligence

Relied upon by big institutional and individual investors across the world, this granular morning newsletter distills the latest and most vital market developments and insures that you are always in the know.