LEISURE LETTER (06/17/2014)

Tickers: PENN, RCL


  • Wed-Thur June 18-19: Todd in Macau for meetings
  • Wed-Thurs June 18-19:  Hedgeye Cruise survey (pre-CCL F2Q)
  • Thurs June 19: LA May revs released


PENN – PENN and the Cordish Companies unveiled project details for 'Live! Hotel & Casino New York' to the Village of South Blooming Grove Board of Trustees.  The $750 million “Live! Hotel & Casino New York” is slated to include an upscale boutique 300-room hotel with luxury suites; a destination spa and fitness center; over 3,000 slot machines; more than 250 live table games; several marquee restaurants; as well as a live entertainment venue and a spacious conference center.

Takeaway: The balancing act of building with enough pizzazz to draw visitation and gaming spend while earning a sufficiently high ROIC to keep investors happy - while also considering the risk of cannibalization in seven years when metropolitan NYC opens to casino expansion.


RCL – signed an agreement with Taiwan International Ports Co. worth $33.3 million to build a cruise ship pier in outlying Penghu County to allow the company's cruise ships to dock there.  RCL will have a 51% stake in the investment.  The new pier will be complete in 2016 and will allow for cruise ships as large as Oasis of the Seas to dock there.

Takeaway:  Project aims to increase cruise awareness in China


Japan Gaming Legislation – The legislative process to approve gaming will on Wednesday when Hiroyuki Horsoda, the deputy secretary-general of the ruling Liberal Democratic Party, will introduce an integrated-resort legislation promotion bill.  Upon passage of this bill, a second bill will be introduced to set the standards by which Japan will open to legalized gambling (wagering via table games and slot machines).

Takeaway:  It's important that this bill reaches agreement in the Lower House as the much tougher battle will be in the Upper House, which may occur in Fall 2014.


Macau Visitation Rules - Secretary for Security Cheong Kuoc Van announced Macau reduced to five days, from seven, the permitted stay for Chinese passport holders who transit in the enclave effective from July 1.  Previously, mainlander Chinese were allowed to enter Macau, stay for up to seven days if they were in transit, and traveling on to a third country.  

Takeaway:  More of a headline to appease the Mainland than an issue that will negatively impact Macau visitation.


Indonesian Gaming Expansion – the first phase of Treasure Bay Bintan, an integrated-resort nearly five times the size (upon completion) of Marina Bay Sands, will open by year end.  The integrated-resort, developed by Landmarks Berhad, could cost around $4 billion and will be located just next to Bandar Bintan Telani Ferry Terminal - a 45-minute ferry ride from Singapore.  Spanning 90 hectares, the first phase of Treasure Bay Bintan will add 1,500 hotel rooms to the island. The third and final phase of the development will open in 2020. Upon completion the resort will encompass 338 hectares. 

Takeaway: A potential threat to Singapore integrated resorts. 


Beijing Home Sales - home sales in Beijing fell 34.9% YoY during the first five months of 2014. The city said real estate developers sold 3.29 million square meters of housing during the period.  Housing starts fell 0.3% to 4.84 million square meters.  Sales of commercial buildings fell 33.6% YoY to 4.54 million square meters.


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.

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Shoe Shine?

This note was originally published at 8am on June 03, 2014 for Hedgeye subscribers.

“Dude, look at your dirty shoes – you need a shine!”

-Joe (NYC)


Yesterday I was getting my shoes shined in NYC at one of my favorite spots – on the corner of Avenue of the Americas and 46th Street, right across from the building where I got fired.


Not that I keep track of the when and the why, but I wrote a book about it so it’s out there. Carlyle fired me for being “too bearish” on the US #ConsumerSlowing on November 2, 2007. My 1st son was born on November 7th. And the SP500 dropped 6% by the end of the month.


Yep, risk happens slowly, then all at once. You know when your shoes are dirty too. If you go to my spot, tell Joe I sent you. He’ll chirp anyone who is looking NYC serious with dirty shoes. Within a block, they all look down. They may not like it, but the truth is staring at them from their feet.


Shoe Shine? - boston shoe shine kids archive 66761 600x450


Back to the Global Macro Grind


Our preferred US Equity Growth index to be short of in 2014 remains the Russell 2000. In addition to being down -0.5% on Friday, it dropped another -0.7% yesterday to -3.1% YTD.


BREAKING: SP500 hits all-time highs –CNBC


Yep, as bond yields crash YTD (peak-to-trough decline in the 10yr Treasury Yield = 20%) and the Russell delivers negative returns, the world’s most consensus short position (SPX Index + E-mini) hit another new high on no volume yesterday. #hooray


Whatever you do, don’t look at your shoes yet.


Total US Equity Market Volume was -28% versus its 3-month average (and the average continues to crash!) and the US Equity market’s breadth (advancing vs. decline stocks) was negative yesterday too (46% gained in price, 50% declined). #dirty


But, but, you have to buy the SP500 … because it’s up, right?


As long as you buy SPX vs short Russell (IWM), I’m into that. From a risk Style Factoring perspective, the SP500 is not the Russell:


  1. SP500 has plenty of #InflationAccelerating components (like Energy and late-cycle Industrial companies taking price)
  2. SP500 has many more slow-growth #YieldChasing components (Utilities, REITS, Telecom, etc.)
  3. SP500 has way more consensus short sellers who tend to short low and cover high


Like the FTSE in the UK, the SP500 is much more multinational too. If you want the pure play on short US domestic growth, it’s the Russell.


While there’s no doubt that it’s a lot easier to call the macro game from the seat I have today than the one I used to be in, that doesn’t mean that market truths cease to exist. #OldWall hasn’t been there to help coach Portfolio Managers through US growth slowdowns. We have been.


Being right in an environment with Rising Variance at both the country and sector level gets easier if you know the macro economy we are in. With US #InflationAccelerating perpetuating US #ConsumerSlowing, here are the Top 3 US Equity Sectors you still want to be long:


  1. Energy (XLE)
  2. Utilities (XLU)
  3. REITS (VNQ)


To reiterate the Sector Style Factors you do not want to be long:


  1. Consumer Discretionary (XLY)
  2. Housing (ITB)
  3. Financials (XLF)


If you leave being US Equity market centric (life is easier that way), buying currencies and stocks in countries who had what the USA had last year (#StrongCurrency + #RatesRising and inflation deflating), current equity markets we still like on the long side are:


  1. United Kingdom (EWU)
  2. India (INP)
  3. Brazil (EWZ)


In addition to being long Bonds (TLT), Inflation Protection (TIP), and Commodities in 2014, it’s what you aren’t long when growth slows (bubble multiple stocks) that has made all the difference too.


My call wasn’t consensus in November 2007, and it wasn’t in January of 2014 either. While we need to be loud about seeing something that we don’t think the Street is paying attention to, we don’t want that to feel dirty to you. We want to help augment your process and keep your shoes shiny.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 2.42-2.57%

RUT 1089-1155

VIX 10.94-13.59

USD 80.05-80.75

British Pound 1.67-1.69

Brent Oil 108.42-110.76


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Shoe Shine? - SPX

Early Look

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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.


TODAY’S S&P 500 SET-UP – June 17, 2014

As we look at today's setup for the S&P 500, the range is 35 points or 1.12% downside to 1916 and 0.68% upside to 1951.                                                       













  • YIELD CURVE: 2.13 from 2.13
  • VIX closed at 12.65 1 day percent change of 3.86%


MACRO DATA POINTS (Bloomberg Estimates)             

  • Fed opens two-day policy meeting
  • 7:45am: ICSC weekly sales
  • 8:30am: CPI y/y, May, est. 2% (prior 2%)
  • CPI ex-food and energy y/y, May, est. 1.8% (prior 1.8%)
  • 8:30am: Housing Starts, May, est. 1.03m (prior 1.072m)
  • Building Permits, May, est. 1.050m (prior 1.080m, revised 1.059m)
  • 8:55am: Redbook weekly sales
  • 4:30pm: API weekly oil inventories



    • House, Senate in session
    • Obama travels to Pittsburgh to speak on economy, then to NYC for DNC-LGBT gala, second DNC event
    • WHR CEO Fettig, WMT’s Gloeckler at Select USA forum
    • 8am: Senate Finance Cmte Chairman Ron Wyden
    • WSJ CFO conference in Washington, see program
    • 9am: Natl Assn of Manufacturers President Jay Timmons, Sr VP Aric Newhouse speaks at Bloomberg Government breakfast
    • 9:30am: Senate Permanent Subcmte on Investigations holds hearing on high-frequency trading
    • 1pm: Rep. Patrick McHenry, R-NC, head of House Financial Services’ Oversight panel
    • 10am: Senate Banking Cmte considers nominees: Julian Castro for HUD secretary, Laura Wertheimer for inspector general of Federal Housing Finance Agency
    • 11am: Sifma gives mid-year outlook for monetary policy, economic growth, employment
    • U.S. ELECTION WRAP: Members Vie to Replace McCarthy as GOP Whip



  • Fed will raise rates faster than investors expect: survey
  • GE to add commitment to protect French jobs to Alstom bid: FT
  • Boing, Lockheed JV starts work on new rocket engine: Reuters
  • Apple reaches settlement with U.S. states over e-book pricing
  • Hackers seen using complicit YouTube to sell stolen cards
  • N.Y. retailers agree to list unit prices on website
  • Sony May console sales beat Microsoft fifth straight month
  • Truckers fight federal rest rules after Morgan crash: NYT
  • Retail gasoline seen rising to 6-yr seasonal high
  • U.K. inflation falls more than forecast
  • Chinese holdings of U.S. Treasuries falls to 14-month low
  • ISIL militants attack north of Baghdad as Obama mulls options



    • Adobe Systems (ADBE) 4:05pm, $0.30   
    • Bob Evans Farms (BOBE) 4:02pm, $0.41 
    • FactSet Research Systems (FDS) 7am, $1.25        
    • John Wiley & Sons (JW/A) 8am , $0.68   
    • La-Z-Boy (LZB) 4:10pm, $0.32     
    • Yingli Green (YGE) 6am, ($0.23)



  • Brent Crude Drops for Second Day as Iraqi Oil Secured; WTI Falls
  • Gold Extends Drop From Three-Week High Before Fed Policy Meeting
  • Beef Reaches U.S. Record as Rancher Sees More Gains: Commodities
  • China’s Port Probe May Curb Iron Ore Financing, Demand: ABN Amro
  • Copper Climbs as Higher Auto Sales Bolster Outlook for Demand
  • Kurdish Region Oil Exports At 200K-250K B/D in July: Hawrami
  • Kurds Grab Fourth-Largest Iraq Oilfield as Islamists Advance
  • Iron Ore Futures in Singapore Slump to Lowest Since April ’13
  • Russia’s $8.2 Trillion Oil Trove Locked Without U.S. Know-How
  • Corn Trades Near Four-Month Low as U.S. Crop Conditions Improve
  • Europe’s Swollen Gas Reserves Guard Against Repeat of ’06
  • RasGas Said to Shut LNG Plant in October for Three Weeks
  • BP to Sign $20 Billion LNG Supply Deal With China’s Cnooc Today
  • El Nino Seen Delayed by Australia as Pacific Ocean Warming Eases


























The Hedgeye Macro Team














Poll of the Day Recap: 60% Believe We Are Entering A New Phase of Market Turbulence

Takeaway: 60% voted YES; 40% voted NO.

Should we fear what lies ahead?


As the Wall Street Journal reported this morning, “a raft of unsettling events have shattered the relative calm of the U.S. stock market and put investors on edge.” Concerns over Iraq and rising oil prices, Fed Policy jitters and other worries helped trigger a 12% jump in the VIX fear gauge and sent the S&P 500 down 0.7% last week, its worst performance in two months.


We wanted to know what you thought: Are we entering a new phase of market turbulence?


Poll of the Day Recap: 60% Believe We Are Entering A New Phase of Market Turbulence - turbulence 


At the time of this post, 60% voted YES; 40% voted NO.


Those who voted YES had this to say:

  • Mass murder, religious warfare, ethnic cleansing, civil war.  but who cares?  The S&P is at an all time high!!!  Complacency in the face of serious global turmoil, plus strengthening economic fundamentals in the US/EU - which means the markets may soon run out of positive expectations to build on
  • ... but tops are a process. Markets are a few months away from a significant top
  • Bull markets cannot last forever, especially with the slow growth


Those who voted NO reasoned:

  • It doesn't appear stocks are being bought for economic reasons. It's buybacks and large players like sov wealth funds, those bailing from bonds, etc.



In Friday’s Early Look (Giddy Up) we highlighted the Fed G.19 Data from April which showed US revolving consumer credit balances rose at a month-over-month annualized rate of +12.3%, the fastest rate of growth since 2001.


While the (potential) inflection was certainly notable, historically, the series has been volatile and subject to significant revision, so the preliminary data is to be taken with some caution. 


In short, it was interesting but, in isolation, hard to build any specific conviction around.


This morning, we received some confirmatory data from Capital One (COF) who reported domestic card loans grew 1.7% MoM in May – a continuation of the strength observed in April.   


There are a few primary takeaways:

  • For COF, the increase in May was well ahead of typical May changes observed over the last decade and a second consecutive month of strength.
  • For consumer credit more broadly, the positive inflection in credit card loan growth is coming after more than 2.5 years of consistent, stagnant 0-1% growth. 
  • Consumption: Despite the acceleration in revolving credit, Household Spending in April was very soft and the collective Retail Sales data for April/May was very much middling

Whether or not rising auto and card balances is reflective of a confident, resurgent consumer or simply an attempt by households to maintain current levels of consumption in the face of rising food and commodity inflation remains open to debate. 


At present, we continue to think the data sides more with the later than the former. 






Christian B. Drake


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