LEISURE LETTER (07/22/2014)



  • July 23:  TRIP 2Q call (430pm)
  • July 24:  
    • WYN 2Q call (830am) ; pw: Wyndham
    • PNK 2Q call (9am) ; pw: 27759616
    • LHO 2Q call (930am)
    • RCL 2Q call (10am)
    • PENN 2Q call (10am)
    • HOT 2Q call (1030am) ; pw: 61542222
    • AWAY 2Q call (4pm)
    • LA June revs released
  • July 25: PEB 2Q call (9am)
  • July 29: 
    • IGT 2Q release
    • GLPI 2Q call (10am)
  • July 30: 
    • MGAM 2Q earnings
    • MAR 2Q call (10 am) : , pw: 59383825


BEL:PM – confirmed via Philippines stock exchange filing:  1) Belle management is looking to increase public ownership in Sinophil in order to widen public float of the latter.  2) We also confirm that Belle management have had preliminary discussions with owners of land near the City of Dreams Manila site for the purchase or lease of their property, on which we may potentially expand the City of Dreams Manila integrated resort. 

Takeaway: Potentially more capex spend for MPEL at COD Manila for a larger casino.


BYI – announced a partnership with Mohegan Sun for the world’s largest installation of table game progressive jackpots. Bally’s new Game Manager 2 software will be used to track progressive jackpots on 43 tables across Mohegan Sun’s three casinos.

Takeaway: A major progressive table systems installation across the casino floor.


INLOT:GA – won a five-year contract extension with the DC Lottery and Charitable Games Control Board until 2020. The terms of the extension include terminals, peripheral devices and a communications network that links retailer terminals across the district to the central system as well as marketing support.

Takeaway: Another big win/renewal for Intralot.

LVS & 1928:HK – The labor group, Forefront of the Macao Gaming, plans a protest on Wednesday outside the Venetian Macao on the grounds the group received no response from the casino resort’s operator Sands China Ltd, a unit of Las Vegas Sands Corp, over what the association calls a “reasonable” request to increase by approximately 10 percent across the board the pay of casino floor staff working on table games at the firm’s properties.

Takeaway: Didn't LVS already raise wages and pay a big bonus?  As we noted in our March 11th and May 5th Leisure Letters, labor issues have the ability to become a major stumbling block with the operators.   

MGM – Prince George's County officials on Monday approved a building plan for a $925 million MGM Resorts International casino and hotel near the nation's capital on an 8-1 vote, paving the way for MGM to get the permits needed to begin construction. The casino, which will be designed to hold 3,600 slot machines and 140 table games plus a luxury spa and rooftop pool at the hotel. The development also includes plans for high-end retail, as well as fine and casual dining, a 1,200-seat theater venue, 35,000 square feet of meeting and event space and a 5,000-space parking structure. The property could open as early as July 2016.

Takeaway: Let the groundbreaking begin.


H – announced an organization realignment and we note Hyatt's formation of an integrated team to lead the Company’s select service business and the creation of a new global franchising strategy function. Hyatt's Global Head of Development and Real Estate, Steve Haggerty’s role will expand to include responsibility for Hyatt’s franchising strategy and select service business. Hyatt noted its franchising strategy and select service business are two key growth areas for the Company. 

Takeaway: Could Q2 14 industry select service RevPAR strength been the catalyst for this announcement? Hyatt's select service operations could surprise to the upside for Q2.  


INN – announced Mr. Jeffrey Jones and Mr. Kenneth Kay have been appointed to the Company’s Board of Directors, which now includes seven members, five of whom are independent, including Messrs. Jones and Kay. Mr. Jones has been appointed to the Audit and Nominating Committees; Mr. Kay has been appointed to the Audit and Compensation Committees. Jeffrey Jones most recently held the position of Chief Financial Officer of Vail Resorts, Inc. Kenneth Kay was Executive Vice President and Chief Financial Officer of Las Vegas Sands Corp

Takeaway: We know both Jones and Kay and view their appointments very favorably. 


STAY – announced resignation of CFO Peter Crage and Jonathan Halkyard was appointed Interim CFO effective Aug 1, 2014. Mr Crage, CFO since 2011, notified the company of his intentions to leave for personal reasons as of 31-Jul, 2014. Crage will complete the preparation and filing of the company’s Form 10-Q for the quarter ended 30-Jun-14 and will serve in an advisory capacity until the end of the year to assist in the transition. Halkyard will continue in his current role as COO during this interim period.

Takeaway: A reorganization following two consecutive earnings misses, in their first two quarters as a public company...we hope a third miss is not in the offering.


NCLH  Enhances Main Dining Menus Cruise Critic

NCLH is overhauling the menu offerings in their main dining rooms fleetwide, as part of its Norwegian NEXT onboard enhancement program. Beginning this month, regionally-focused menus (varying by ship itinerary) will roll out, offering increased selection and contemporary variations on popular dishes.

Takeaway: NCLH's industry-leading onboard yields actually declined YoY in 1Q 2014 (1st decline since 2Q 2012).  The NEXT program betterh help the ship liner get back to growth. 


CTRP – Another Chinese Cruise Line? Ctrip Acquiring Tonnage? Cruise Industry News 

According to sources and a Chinese media report, Ctrip may be entering the cruise industry as soon as this coming 2014/2015 cruise season in Asia.  Ctrip says it sells 10% of all cruise tickets to Chinese passengers.  Now, they may be hot on the heels of local rivals HNA Cruises and Bohai Ferry in entering the business themselves.  A source familiar with the company told Cruise Industry News that Ctrip was in the market for a medium sized vessel, at roughly the 2,000 passenger size.

Takeaway: A Chinese OTA buying a cruise? Why not.


Margaritaville Casino Biloxi – Margaritaville Casino & Restaurant has announced that it will be closing this fall.  According to a press release, the casino will close on or before September 19, and will pay its employees until that time. The casino attributed the closing to its inability to resolve a dispute with its landlords necessary to secure financing for a new hotel and other amenities. Margaritaville made the announcement to its employees this morning. The casino had 359 employees as of March 31, 2014 and opened in May 2012.

Takeaway: Another closure in Mississippi despite only two years in operation.


Nebraska Gaming Expansion – In November, voters will have their say on a constitutional amendment would clear the way for the video terminals (slot machines) at licensed race tracks in Omaha, Lincoln, Hastings, Grand Island and Columbus, as well as the site of the former Atokad Downs in South Sioux City. The amendment would distribute 49 percent of the tax revenue to schools, 49 percent to reduce property taxes and 2 percent to a state treatment fund for compulsive gamblers. Nebraska currently allows keno, horse racing, and a lottery.

Takeaway: Could be a positive for slot sales but a negative for PNK and CZR, two operators in Council Bluffs, IA.


Saipan Casino Development Questioned – Strategic Gaming Solutions CEO Ben Lee suggested a scarcity of labor will be the Saipan casino’s stumbling block and it is extremely difficult to find labor on island, adding that the construction of a 2,000-room casino-hotel will require 2,000 to 3,000 workers. Mr. Lee further stated, such a property will also need at least 1,000 to 1,500 people to run that kind of resort. Beyond labor availability Mr. Lee theorized availability, water and power will be other key challenges for Best Sunshine, which has been awarded a conditional license to run a casino on Saipan.

Takeaway: Finally a voice of reason regarding this potential White Elephant development.


Hard Rock Hotel and Casino Sioux City – is ready to open on August 1 and will feature an action packed weekend with a grand opening celebration, the Summerland Tour 2014 with headlining bands Everclear and Soul Asylum on August 2.

Takeaway: The demise of Argosy Sioux City is at hand.



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.

Delaying Time

This note was originally published at 8am on July 08, 2014 for Hedgeye subscribers.

“With physical time, there is no need to know why a cycle exists – only that it does.”

-The Fourth Turning


If there’s one quote that links cycles to the behavioral side of markets in The Fourth Turning, that’s it. With the Old Wall bearish on interest rates in 2013 (and bullish on them in 2014), never have so many told macro stories about growth that have gotten so few paid.


Delaying Time - p7


You can call it framing data, confirmation bias, emotional baggage – or some combination of all three. It’s all there, all of the time. And it’s your job to fight it’s behavioral gravity.


Sounds easy, right? Not so much. That’s why process matters. The best we can do each and every morning of our macro day is accept what is – not what we need it to be.


Back to the Global Macro Grind


If only consensus could delay the 3rd quarter due to the 1st quarter’s “weather”…


In other news, it’s Q3 and US growth, as an investment style, got pounded yesterday. If you don’t want to acknowledge that Biotech Stocks (IBB) and the Russell 2000 (IWM) were down -2.6% and -1.7%, respectively, just quote the slow-growth Dow. It was -0.26%.


If I go all interconnected macro on you, and move beyond the typical US stock market centric naval gazing  that is the Dow or the SP500, you’ll also note that yesterday’s US #Q3Slowing signals were manifest:


  1. Bond Yields – 10yr UST Yield failed, hard, at yet another lower high (2.81% TREND resistance intact)
  2. US Dollar – remained no bid within the context of a bearish TAIL risk view ($81.17 USD Index resistance)
  3. Volatility – front-month fear (VIX) once again ripped off the Braveheart line of 10, closing at 11.33


But, but, the Russell is still “up” this year. Yep, a whopping +1.8% YTD (and it’s July).


Instead of trying to justify why an equity market “should see multiple expansion”, we say you deal with what you have. US Equities trade at 16x earnings because we have boomer-style-stagflation. In that part of the cycle, bonds get multiple expansion, not stocks.


As you try to navigate this mess of “it’s different this time” narratives, always know where the other players positions are. Here are the most recent net long/short positions in macro from a CFTC Futures/Options perspective:


  1. BONDS – 10yr Treasury still has a net SHORT position of -27,891 contracts (that’s -25,538 shorter wk-over-wk)
  2. US STOCKS – SPX (Index + Emini) has a net SHORT position of -53,081 contracts (that’s +39,668 LONGER wk-over-wk)
  3. US DOLLAR – ramped to its biggest net LONG position of 2014 last week = +20,197 contracts


In other words, post the lagging economic indicator (i.e. old news of US #GrowthAccelerating that you should have been long of, in size, last year) that was US “jobs recovery” on Thursday:


  1. Consensus kept shorting bonds thinking rates will rise (consensus has had this view all year)
  2. Consensus hedge funds did what they usually do in US Equities (covered shorts high, after shorting low in May)
  3. Consensus ramped up the long rates, long USD bet that it should have had on in Q1 of 2013 as growth was accelerating


The hedge fund net positioning part is important. Whether or not you agree with AQR’s recent research view that hedge funds have a +0.93 correlation to beta right now or not, reality is that hedge funds are highly correlated to the levered long side of growth.


Hedge fund assets under management are also at all-time highs (approximately $2.7T), so the confirmation bias and emotion you see in the futures and options markets is important to monitor. It’s a collective snapshot of behavior.


In the immediate to intermediate-term (3 weeks to 6 months) most hedge funds are forced to chase performance – and the best way to play catch-up when you aren’t beating your bogey is to get long, with leverage.


Yes, from the asymmetric point that is the Russell 2000’s all-time high of 1208 (March 2014), that is scary.


So is the concept that an un-elected-central-planning-committee can delay things like economic cycles and time. As Ray Dalio appropriately says, most successful risk managers realize that nature is testing us, and she’s not that sympathetic.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 2.50-2.64%

SPX 1966-1985

RUT 1168-1208

VIX 10.32-12.61

USD 79.71-80.43

Gold 1310-1330


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Delaying Time - Chart of the Day


Client Talking Points


The European currency is also important to watch here as the EUR/USD tests breaking our $1.35 TREND support line – will Draghi get more dovish during vacation before Janet does (on USD) at Jackson Hole (August 21)? #DevaluationWar.


Big move in both Shanghai and Hong Kong stocks overnight (Hang Seng +1.7%) and both are now signaling bullish TREND, which is an interesting contrarian signal given how pervasively bearish Consensus Macro is now on China.


Front month bounced off 11.94 @Hedgeye TREND support yesterday, so this will be an important day for volatility – with an up open for U.S. Equities, will the TREND line hold? If it does, no resistance to 14.99.

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


RUSSIA: +2.2% on the bounce to 1266 RTSI (would need another 50pts to recover resistance)



The men who try to do something and fail are infinitely better than those who try to do nothing and succeed.

-Lloyd Jones


Orange Juice prices are up another +0.4% in a down U.S. Equity tape yesterday to +12.3% year-to-date, orange-juice sales fall to a record low.

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TODAY’S S&P 500 SET-UP – July 22, 2014

As we look at today's setup for the S&P 500, the range is 27 points or 0.79% downside to 1958 and 0.58% upside to 1985.                                                            













  • YIELD CURVE: 2.00 from 1.98
  • VIX closed at 12.81 1 day percent change of 6.22%


MACRO DATA POINTS (Bloomberg Estimates):

  • 7:45am: ICSC weekly sales
  • 8:30am: CPI m/m, June, est. 0.3% (prior 0.4%)
  • 8:55am: Redbook weekly sales
  • 9am: FHFA House Price Index m/m, May, est. 0.2% (prior 0.0%)
  • 10am: Richmond Fed Manufacturing Index, July, est. 5 (prior 3)
  • 10am: Existing Home Sales, June, est. 4.99m (prior 4.89m)
  • 4:30pm: API weekly oil inventories



    • 9:30am: Senate Permanent Subcmte on Investigations hearing on abuse of fin’l products to avoid taxes w/testimony from Renaissance Tech’s Peter Brown, Mark Silber, Jonathan Mayers
    • 10:30am: Senate Energy and Nat. Resources Cmte hearing on federal rev. from oil, gas, and mineral prod. on public lands
    • 11:30am: U.S. Chamber of Commerce press call on SEC’s vote on imposing add’l reform rule on money mkt mutual funds
    • 2pm: Senate Veterans Affairs Cmte hears Robert McDonald on his VA secretary nomination
    • U.S. ELECTION WRAP: Georgia Runoff; Adelson May Inject Cash



  • Credit Suisse to exit commodities after biggest loss since 2008
  • Apache faces breakup push in Jana’s $1b activist stake
  • Pershing Square’s Ackman’s Herbalife presentation at 10am
  • U.S. senate finance cmte 10am hearing on tax code, inversions
  • Malaysian Air likely near end as publicly traded company
  • AMS ends talks to buy Dialog to create $4.5b chipmaker
  • Yahoo said to buy startup flurry for more than $300m
  • Tesla idles California plant adding robots to build electric SUV
  • Papa John’s, Burger King, Dicos stop using Chinese meat supplier
  • Kindred raises offer for Gentiva, matching mystery bidder
  • Putin risks isolation as rebels release MH17 crash victims



    • Allegheny Technologies (ATI) 7:30am, $0.01
    • Altria Group (MO) 6:58am, $0.66 - Preview
    • Carlisle (CSL) 6am, $1.18
    • Centene (CNC) 6am, $0.72
    • CIT Group (CIT) 6:30am, $0.84
    • Coca-Cola (KO) 7:30am, $0.63 - Preview
    • Comcast (CMCSA) 7am, $0.72 - Preview
    • Domino’s Pizza (DPZ) 7:30am, $0.66
    • EI du Pont de Nemours (DD) 6am, $1.17 - Preview
    • Exact Sciences (EXAS) 7:30am, $(0.24)
    • FirstMerit (FMER) 7:30am, $0.36
    • Gannett (GCI) 8:30am, $0.64
    • Harley-Davidson (HOG) 7am, $1.46
    • Ingersoll-Rand (IR) 7am, $1.10
    • Kimberly-Clark (KMB) 7:30am, $1.50 - Preview
    • Lexmark Intl (LXK) 6:30am, $0.93
    • Lockheed Martin (LMT) 7:25am, $2.66 - Preview
    • McDonald’s (MCD) 7:58am, $1.44 - Preview
    • Mead Johnson Nutrition (MJN) 6:59am, $0.89
    • Neogen (NEOG) 8:45am, $0.21
    • Omnicom Group (OMC) 7am, $1.16
    • Peabody Energy (BTU) 8am, $(0.29) - Preview
    • Polaris Industries (PII) 6am, $1.39
    • Regions Financial (RF) 7am, $0.21
    • Rockwell Collins (COL) 7:30am, $1.17
    • State Street (STT) 7:12am, $1.26
    • Synovus Financial (SNV) 7am, $0.35
    • TD Ameritrade (AMTD) 7:30am, $0.34
    • Travelers (TRV) 6:57am, $2.07
    • United Technologies (UTX) 6:59am, $1.70 - Preview
    • Verizon Communications (VZ) 6:30am, $0.90 - Preview



    • ACE (ACE) 4:05pm, $2.23
    • Apple (AAPL) 4:30pm, $1.23 - Preview
    • Broadcom (BRCM) 4:05pm, $0.61
    • Covanta Holding (CVA) 4:01pm, $0.01
    • Cubist Pharmaceuticals (CBST) 4pm, $0.01
    • Discover Financial Services (DFS) 4:05pm, $1.29
    • Eagle Materials (EXP) 4:15pm, $0.87
    • Electronic Arts (EA) 4:01pm, $(0.04)
    • FMC Technologies (FTI) 4pm, $0.63
    • FNB (FNB) 4:30pm, $0.21
    • Fulton Financial (FULT) 4:30pm, $0.22
    • Hatteras Financial (HTS) 4:30pm, $0.59
    • • Idex (IEX) 4:05pm,    $0.86
    • Intuitive Surgical (ISRG) 4:05pm, $2.82
    • Juniper Networks (JNPR) 4:05pm, $0.38- Preview
    • Linear Technology (LTC) 5:01pm, $0.56
    • Microsoft (MSFT) 4:01pm, $0.60
    • Nabors (NBR) 4:06pm, $0.23
    • Robert Half Intl (RHI) 4:02pm, $0.52
    • Total System Services (TSS) 4pm, $0.45
    • VMware (VMW) 4:01pm, $0.79
    • Xilinx (XLNX) 4:20pm, $0.61



  • Credit Suisse to Exit Commodities, Posts Biggest Loss Since 2008
  • Zinc Nears Three-Year High as Aluminum Advances in Bull Market
  • Metal ETFs Lure Investors at Fastest Pace Since ’09: Commodities
  • Europe White Sugar Exports Seen Jumping by Kingsman in 2017-2018
  • Soybeans Slide Fourth Day as U.S. Crop in Best Shape Since 1994
  • Gold Declines in London as Fed Outlook Curbs Investor Demand
  • Sugar Drops With World Surplus Weighing on Market; Coffee Falls
  • China Seen Boosting Soybean Imports as Animal Feed Demand Rises
  • Palm Nears 10-Month Low as Soybeans Extend Declines on U.S. Crop
  • Rebar Rises From 1-Month Low on Signs of Strengthening Demand
  • ANZ Bank Raises Nickel Price Ests. as Indonesia Ban Hurts Supply
  • WTI Rises for Second Day Before Stockpiles Data; Brent Gains
  • Record Corn Crop Potential in Western Illinois, Doane Tour Shows
  • Sugar Seen Hovering Around 16-17 Cents by Kingsman Rest of Year


























The Hedgeye Macro Team
















July 22, 2014

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CHART OF THE DAY: Leading vs. Lagging Indicators: You Choose


CHART OF THE DAY: Leading vs. Lagging Indicators: You Choose - Chart of the Day


Risk managing macro rarely has anything to do with “valuation” or even reported supply and demand metrics. Most of the big moves in macro happen on the margin when there is a phase transition in price momentum, volume, and volatility.

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