Takeaway: Some cracks in the RCL bullish thesis while more positive pivots for CCL and NCLH on the margin

Some cracks in the RCL bullish thesis while more positive pivots for CCL and NCLH on the margin


Wall street darling RCL has seen little resistance this year. Quantum pricing looks good and up until now the RCL thesis looked bullet proof.  However, our August survey revealed some discounting in the RC Caribbean itineraries.  Stocks trade on the margin and the pivot here looks negative for RCL despite unabated strength in Europe.


On the other hand, the CCL and NCLH pivots look positive, on the margin.  The August survey indicated slightly higher pricing for the Carnival brand pricing for FQ4 2014 and FQ1 2015.  For NCLH, the Norwegian brand (through mostly Getaway) seems to be reflecting CEO Sheenan's promise of a 3% price increase.  


We've been negative on NCLH, neutral on CCL, and positive on RCL. Given the survey results versus current sentiment, we could see the relative performance of the stocks reverse somewhat over the coming weeks.


  • CCL:  Positive
  • RCL:  Negative
  • NCLH:  Positive


We track YoY and sequential pricing for 13,000 ship itineraries spanning across 8 geographic regions.  We rely on sequential pricing trends (defined as how pricing has changed relative to pricing seen at the last time the company provided guidance) for price pivot signals.



Our pricing survey for mid-August suggests the RC brand underperformed in the Caribbean and for some Asia itineraries.  Meanwhile, we saw a slight improvement for CCL and NCLH due to stronger pricing for the Carnival and Norwegian brands.  European pricing, which is Q3 heavy, remained steady. 



Caribbean pricing continues to be volatile but in mid-August, the Carnival brand showed higher pricing.  In stark contrast, the other brands in the Caribbean fared poorly, particularly Princess.



  • Carnival brand
    • Sequential pricing rose slightly for FQ4 as well as for FQ1/FQ2 2015. 
    • On a YoY basis, FQ4 pricing is trending up in the mid-teens for the Eastern Caribbean itineraries and mid-single digit growth for the Western/Southern Caribbean itineraries.
  • Princess/Holland America
    • Pricing is significantly lagging behind.  Princess, in particular, has been discounting aggressively for Caribbean and Western US itineraries for FQ4 2014 and FQ1 2015. Holland America pricing was a tad lower.


  • Costa continues to be the shining light for CCL’s European business thanks to very easy comps.  FQ4 pricing growth remains comfortably near 20%.  1H 2015 pricing comparisons will be a challenge if Costa does not raise prices.  Pricing for the other brands were either flat or slightly higher.


  • Pricing ticked up for Holland America and Princess itineraries.

South America

  • Costa pricing for FQ4 moved modestly lower while 1H 2015 pricing was a tad higher
  • Holland America/Princess pricing was unchanged for early 2015




Royal Caribbean brand pricing receded somewhat in mid-August in the Caribbean.  However, that was offset by its pricing leadership in Europe.



  • RC brand
    • A bit of a surprise as sequential pricing turned south for many of the Royal Caribbean brand itineraries for FQ3 and FQ4.  The discounting extends to Allure of the Seas and Oasis of the Seas.  
    • Excluding Quantum of the Seas, on a YoY basis, FQ3 pricing is trending down mid-single digits, while FQ4 pricing is down slightly.
    • Quantum of the Seas pricing was steady as a rock
  • Celebrity
    • FQ4/FQ1 sequential pricing was steady but due to hard comps, YoY pricing is lower by high single digits.  
  • Pullmantur
    • Pricing was steady for Q4 2014 but a challenging start to Q1 2015 due to more difficult comps


  • August sustained the pricing momentum seen earlier in 2014.  For the RC brand, FQ3 pricing is trending 20% YoY and slightly above 10% YoY for FQ4.
  • Celebrity pricing increased sequentially for 2H 2014 with YoY pricing in the low double digits.
  • After creeping higher for the previous two months, Anthem of the Seas pricing rose modestly in mid-August for May-October 2015 sailings.
  • Pullmantur pricing slightly increased sequentially


  • Pricing was generally weak for the RC brand while Celebrity is seeing pricing growth.





NCL has been slumping for much of 2014 due to Caribbean overcapacity. But do pricing signals from mid-August suggest the beginning of an inflection point or a head fake?


  • Still discounting in the Caribbean for FQ3 but the sequential cutting has tapered.
    • Breakaway cut FQ3 prices to a new low of $91 per diem 
  • FQ4 pricing showed a 3% sequential price increased led by Getaway in the Nov/Dec months
    • This is the 1st sequential price increase since we started tracking the data for FQ4
    • FQ4 ship premiums rose for Breakaway and Getaway





  • Q1 2015 pricing lower - as expected, due to difficult comps
  • Q2 2015 up slightly


  • Pricing was stable; few itineraries available


  • Continues to be a struggle for the rest of the year



CCL/NCLH outperformed while RCL was the laggard in August, at least relative to recent trends.  The Caribbean has been a roller-coaster ride for the cruisers this summer as mixed brand pricing trends are the norm and we may see more volatility ahead.  A trend or an outlier, only time will tell.  


The good news is that Europe pricing remains quite robust for the rest of 2014 despite the significant global geopolitical turmoil.  The question is whether it can be sustained into 2015.  While it is super early, we're seeing mixed pricing there as well. 


The Carnival brand is making strides in pricing thanks to ridiculously easy comps but it is not translating into higher prices for CCL's other brands. With earnings in one month, we look to September's survey for confirmation of these trends.  


Though NCLH performed better in mid-August, we wait to see if it is indeed an inflection point.  Remember, CEO Sheehan promised investors a 3% price increase across its fleet during its Q2 conference call.  Among the big 3 operators, NCLH is most sensitive to the Caribbean/Bermuda market, and faces harder pricing headwinds in 1H 2015 along with no yield boost from a new ship until FQ4 2015.

Wait & Watch

Client Talking Points


Domestic stock funds put up their 16 consecutive week of outflow and are now entering the seasonally weakest period of the year so avoid those equity managers JNS and TROW. The net of total equity mutual fund and ETF trends against total bond mutual fund and ETF flows totaled a negative $1.0 billion spread for the week ($3.0 billion of total equity inflow versus the $4.1 billion inflow within fixed income; positive numbers imply greater money flow to stocks; negative numbers imply greater money flow to bonds).


Indices are broadly lower in-line with recent economic data out of the region. Eurozone CPI is running at 0.4% year-over-year in July, which is the lowest since October 2009. Our quantitative lines of support have been broken across European equities for 1.5 months (the DAX, CAC, and MIB index all remain bearish TREND signals).


The U.S. dollar is up here week-over-week. If it holds above the tail line of 81.44 and continues to make a series of higher highs we may have to back away from our negative view. We will have to see what Yellen’s next move is, she speaks at Jackson Hole today at 10:00am (Mario Draghi speaks at 2:30pm).

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.


The level of activism in the restaurant industry has never been more rampant.  In the past year alone, we’ve seen CBRL, DAVE, DRI, BJRI and BOBE attract largely uninvited attention from these investors. BOBE has a long history of mismanagement, evidenced by flawed strategic rationale, an excessively bloated cost structure and severe underperformance relative to peers.  Fortunately, its poor operating performance presents a tremendous opportunity. We believe activist investor Sandell has identified significant, largely feasible, opportunities to enhance shareholder value.  Particularly, we see tremendous upside value in selling the foods business, transitioning to an asset light model and refocusing capital allocation.


Fixed income continues to be our favorite asset class, so it should come as no surprise to see us rotate into the Shares 20+ Year Treasury Bond Fund (TLT) on the long side. In conjunction with our #Q3Slowing macro theme, we think the slope of domestic economic growth is poised to roll over here in the third quarter. In the context of what may be flat-to-decelerating reported inflation, we think the performance divergence between Treasuries, stocks and commodities may actually be set to widen over the next two to three months. This view remains counter to consensus expectations, which is additive to our already-high conviction level in this position.  Fade consensus on bonds – especially as growth slows. As it’s done for multiple generations, the 10Y Treasury Yield continues to track the slope of domestic economic growth like a glove.

Three for the Road


$GPS makes it clear that market share for Athleta will come from $NKE. No mention of $LULU. (not that we won't see share shift there too)



Great  moments are born from great opportunities.

-Herb Brooks


The A.L.S. Association has received $41.8 million in donations from July 29 until Aug. 21. More than 739,000 new donors have given money to the association. That’smore than double the $19.4 million in total contributions the association received during the year that ended Jan. 31, 2013, according to a filing with the Internal Revenue Service.

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Relative Speak

“There’s a lot of cash on the sidelines!”

-Anonymous Pundit

Outspoken hedge fund manager Cliff Asness of AQR recently remarked “Every time someone says, ‘There’s a lot of cash on the sidelines’ a tiny part of my soul dies. There are no sidelines.”

Relative Speak - sidelines

Asness' pet peeve for this common saying implying “this is why the market still has room to run” based on absolute historical fund flows and equity valuations is based on a slightly different interpretation than we prefer to reference. Yet we absolutely agree with his disdain for this statement at face value (although maybe not as pointedly).


With all global market participants attempting to front-run the RELATIVE positioning of each monetary authority, finding the right RELATIVE positioning across asset classes is the key starting point for global macro risk management in today’s environment. We strongly believe that our implication of the POLICY metric into our quantitative model for pinning the convexity of growth and inflation is a key differentiator.  Sticking solely with a strategy that seeks fundamental value through historical, absolute metrics has been a difficult task during the second half of this 6-year bull market.


In an interview discussing his pet peeves and preferable investment strategy, Asness went on to say that in his opinion, two of the main strategies that have worked over the long-term, are value and momentum investing and that combining those works much better than either one.


Value with a catalyst as we prefer to call it?


Back to the Global Macro Grind...


This is only his high level opinion about what works, but when we look at our own process, we believe it’s plausible to back into our own process from this simple statement. We describe our process as “a multi-factor, multi-duration model that utilizes a fundamental and quantitative approach to global macro risk management.”  The quantitative sequence for buying or selling a single security is as follows:


  1. Is the slope of growth and inflation in those economies under the guise of central banks with the ability to print money accelerating or decelerating RELATIVE to consensus expectation as reflected in market prices?
  2. What is the fiscal and monetary response RELATIVE to the other central banks of the “reserve currencies” who, with the confidence of all global participants for now, tighten their credit spread by printing more money? What emerging market economies benefit or suffer?
  3. What do the effects of a stronger or weaker domestic currency mean for real domestic growth based on the componentry of its growth dynamics? How is this observed to confirm or discredit the tendencies in markets?
  4. Now with this overlay, what is fundamentally happening in a domestic economy to strengthen or weaken the outlook for growth?
  5. Which sectors perform better or worse under each scenario (see all four below)?
  6. With this sector bias, pick your long-short ideas
  7. MOST IMPORTANTLY, how do you execute this fundamental call (HINT: Some form of momentum?)
  8. By studying our intermediate-term duration, we can observe key levels of support and resistance to observe the overall TREND in the market.
  9. If in fact the fundamental and TREND signals match up we manage the risk of the range by buying on red and selling on green on the signals.                 


Generating alpha in a market that has gone straight up for the last two years is no easy task. Our best way to seek outperformance begins with #1 above. There are simply four main scenarios in our GIP model (GROWTH, INFLATION, POLICY) for real economic expansion, and front-running the inflection points allows us to pick SECTORS that outperform under each scenario:


  1. Growth accelerating, inflation decelerating
  2. Growth accelerating, inflation accelerating
  3. Growth decelerating, inflation accelerating 
  4. Growth decelerating, inflation decelerating


The monetary response to each scenario and the implications for the strength of an economy’s real purchasing power is predictable in our opinion, but in this never-before seen monetary experiment, front-running the RELATIVE policy response when the centrally-planned machines of different monetary authorities are confronted with the same scenario is difficult. We believe the best- way to front run the big turns is to take in the relevant economic and market data on a day-to-day basis, and position accordingly.


Janet Yellen’s commentary on Wednesday was perceived as more hawkish than the market expected. We weren’t “trading the speech” or hanging on every word, but we didn’t get any indication she is taking a hawkish turn.


Across the pond, Europe has turned severely weaker out of a strong first-half, and the market over the last month has indicated an expectation for a RELATIVELY more dovish Draghi. The tone in his most recent speech reflected his willingness to stand ready for an ABS purchase program. In fact, he more or less said that he would implement an asset-backed purchase program (QE without the government bond and public asset purchase program) immediately if given the authority.


Both the quant signals and our GIP model suggest Europe may slow for the next three consecutive quarters and the FX and gold markets are expecting a relatively more dovish Draghi.


  • The EUR/USD has backed off 1.5% bps over the last month
    • USD breakout vs. EURO breakdown in our model
    • Gold (USD and POLICY-denominated) is down 3% over the last month


CAN DRAGHI CONVINCE THE MARKET HE’LL BE MORE DOVISH FROM HERE? Unfortunately we don’t possess a crystal ball, but our domestic view on overly optimistic growth expectations for the full-year remains intact as it has for all of 2014.


Don’t be afraid to take up your USD exposure and put a little cash on the sidelines (When the USD is going up!)


Have a great weekend.


Ben Ryan



Relative Speak - COD

LEISURE LETTER (08/22/2014)

Tickers: BYI, CZR, IGT, PNK, H, CCL


  • Aug 26:  Horseshoe Baltimore Opening
  • Aug 27:  BYI 2Q earnings
  • Aug 28:  Hollywood Dayton Raceway Opening
  • Sept 1/2:  Revel closes


BYI – Launched and connected its "Cash Connection" wide-area progressive slot link across Nevada and New Jersey. As a result of the interstate progressive linked slot machines, jackpots should reach larger amounts more quickly and thus offer more excitement for players. The multi-state link features Bally’s hit games including TITANIC, The Magic of David Copperfield, Betty Boop’s Fortune Teller, Jackpot Empire, Hot Shot Progressive, and other titles.

Takeaway: A small but much needed catalyst for higher yields.


IGT – announced Nevada joined IGT's Powerbucks commercial multi-state Wide Area Progressive link as such Powerbucks networked games in Nevada casinos are now linked with casinos located in New Jersey and Deadwood, South Dakota.

Takeaway: All efforts to make slot machine gaming more exciting despite demographic headwinds.


PNK – Belterra Park reduced its slot floor by 35 slots in July.

Takeaway: A very disappointing opening for the racino.  PENN should fare better in Youngstown and Dayton though as both racinos will open in much less competitive geographies.


H – Hyatt Hotels Corporation is now offering access to the transportation service Uber through its app for iOS and Android. Uber, a service that allows riders to connect with transportation on-demand, is present in more than 100 cities worldwide and can be accessed through a dedicated Uber button located beneath the 'My Reservations' section in the Hyatt app. According to the Wall Street Journal, the Hyatt app also estimates trip prices for each Uber segment while also automatically storing the guest's hotel address for future use.

Takeaway: Hyatt trying to fully integrate transportation into its guest reservation process.


CCL – Princess Cruises is offerings savings on more than 150 cruise vacations to sunny destinations such as the Caribbean, Tahiti, Hawaii, Panama Canal and Mexico. The “Endless Summer Sale” runs through September 10, offers guests the chance to save up to $1,400 on select cruises departing between November 2014 and February 2015. In addition to special cruise fares, guests booking balcony staterooms or above will receive an onboard credit of $200 (for cruises 11 days or longer) or $150 (seven- to 10-day cruises); and those booking interior or oceanview staterooms can get credits of $150 (cruises 11 days or longer) or $100 (seven- to 10-day cruises).

Takeaway: More discounting in the Caribbean and Mexico.  


SLS Granted License – The Nevada Gaming Commission approved licensing for the SLS Las Vegas, setting the stage for the opening of the $415 million redevelopment of the former Sahara.  The SLS has been reconfigured to include a 56,000-square-foot casino with nearly 800 slot machines, 74 table games and a high-limit gaming area. A sports book will be operated by William Hill.

The nine restaurants and three nightlife venues include many SBE signature brands, including Umami Burger, the Mediterranean-themed Cleo, Japanese-themed Katsuya, 800 Degrees pizza and The Sayers Club entertainment lounge.

The three former Sahara hotel towers, all built in different decades, have been reconfigured under new names — Lux, World and Story — and are aimed at different markets: the luxury customer, the tour and travel market and the younger crowd looking for a “Vegas weekend.”

Takeaway: Given the SLS' overall programming, other operators risk losing younger guests as well as the California drive-in guests to the old-meets-new SLS.


Tuberculosis at Two Tunica Casinos (Clarion Ledger) The Mississippi Department of Health has confirmed two recent cases of tuberculosis (TB) at two Tunica casinos. One employee each at the Horseshoe Tunica Hotel and Casino and the Gold Strike Casino Resort were diagnosed. The employees are not currently at the casinos. TB is an airborne infectious disease caused by the bacterium Mycobacterium tuberculosis. Last year, 65 cases of TB were confirmed in Mississippi. TB is curable and preventable, though some drug-resistant strains of TB are more difficult to treat. Treatment for TB infection can from 12 weeks to nine months

Takeaway: As if the general public needs another reason to avoid casinos.

Indiana Casinos to remain boat based – Indiana Governor Mike Pence announced he opposes the transition of casinos from riverboats to land-based properties.  Governor Pence's comments follow recent commentary by Tropicana in Evansville to transition to a land-based operation.

Takeaway: Indiana stands to lose play to neighboring states with newer land-based casinos - as if the environment wasn't tough enough.


Resorts World Manila (Philippine Daily Enquirer) Genting’s Philippines-based Resorts World Manila (RWM) is spending about US$650 million (RM2.06 billion) to double its gaming and hotel capacity. RWM chief operating officer Stephen Reily said on an average day, some 18,000 patrons visited RWM but the number increased to between 32,000 and 34,000 during “busy days”

Takeaway: Genting trying to keep its programming current as new competition from City of Dreams Manila is about to open.

Universidade de Macau – The University of Macau (UM) will start its 2014/2015 school year next Monday on the newly developed campus on Hengqin Island.  About 4,000 students will live in the Residential College in the new campus. There will be more than 9,000 students in the new school year, including 1,700 freshmen. The full move to the new campus will be complete by November as portions of the laboratory facilities have yet to be transferred. The Macau Government announced that the university’s current campus will be reserved for higher educational purposes. In addition, a one-year temporary measure of lending and renting the old campus’ dormitories to three local universities will commence in the new school year.

Takeaway: Could the old college dormitories serve as casino worker housing for the Cotai casino operators?  Such a plan would appease the Chief Executive. 


Hurricane Season (Finally) Heading Up – According to the National Hurricane Center, current satellite data indicate an area of low pressure located over the Leeward Islands which has a 60% chance of forming a tropical depression over the next 48 hours and a 80% change over the next five days. Environmental conditions are expected to be more conducive for development when the disturbance moves near or over the southeastern Bahamas on Saturday, and a tropical depression is likely to form over the weekend or by early next week.

Takeaway: Potential for cruise disruptions and reschedulings across South Florida, the Bahamas and the Caribbean.  


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.


August 22, 2014














  • YIELD CURVE: 1.92 from 1.94
  • VIX closed at 11.76 1 day percent change of -0.17%


MACRO DATA POINTS (Bloomberg Estimates):              

  • No major economic reports scheduled
  • 10am: Fed’s Yellen at Kansas City Fed symposium at Jackson Hole, Wyo.
  • 1pm: Baker Hughes rig count
  • 2:30pm: ECB’s Draghi speaks at Jackson Hole



    • President Obama on vacation on Martha’s Vineyard
    • Senate, House out on August recess
    • U.S. ELECTION WRAP: McConnell on Shutdowns; Ernst Policies



  • Labor market at Jackson Hole forefront before Yellen speech
  • Theory of tech replacing workers overblown: MIT J.H. paper
  • Lew Says business tax reform best for addressing inversions
  • Family Dollar said open to Dollar General deal with changes
  • BofA seeks to prove Buffett’s call right after settlement
  • Citigroup faces curbs on hedge fund sales after deal: WSJ
  • Enbridge avoids U.S. review with plan to boost oil sands flow
  • GM legal dept. investigated by U.S. on recall delay: WSJ
  • Co. to halt production at Russian plant for 4 periods
  • Home Depot U.S. president Menear to succeed Blake as CEO
  • IBM never stopped server sales to Chinese banks: China Daily
  • GE says reports of FAA grounding of Air India 787 incorrect
  • Keurig 2.0 to go on sale from Aug. 24: WSJ
  • Aeropostale considers closing additional 175 stores
  • Disney unveils new Star Wars game for mobile: NYT
  • Lockheed meets with suppliers on lower F-35 costs: Reuters
  • U.S.GDP, Housing, Ukraine, Tennis, Emmys: Wk Ahead Aug. 23-30



    • Ann Inc. (ANN) 7:31am, $0.69
    • Foot Locker (FL) 7am, $0.54 - Preview
    • Hibbett Sports (HIBB) 6:30am, $0.31
    • Royal Bank of Canada (RY CN) 6am, C$1.57 - Preview



  • WTI Oil Set for Longest Weekly Slide Since November; Brent Drops
  • Gold Advances From Two-Month Low Before Central Bankers Speak
  • Palm Oil Drops Below 2,000 Ringgit First Time Since 2009 on Glut
  • Too Much Corn With Nowhere to Go as U.S. Farmers Plan for Record
  • Chinese Zinc Threatens Biggest Jump in 5 Years: Chart of the Day
  • Pacific Tropical Storm Marie May Strengthen to Hurricane Today
  • Wheat Rises as World Supply Seen Less Ample on Lower Canada Crop
  • MORE: Shanghai Exchange Copper Stockpiles Drop by Most Since May
  • Copper Rises to Two-Week High on U.S. Home Sales: LME Preview
  • Copper Set for Weekly Gain as U.S. Housing Data Beats Estimates
  • WTI Crude Seen Rising on Falling Inventories in Analyst Survey
  • First Crude Tanker Departs From Hound Point After Maintenance
  • Gold Traders Most Bearish in Seven Weeks on U.S. Rate Outlook
  • EU Natural Gas Traders Most Bullish in Six Weeks on Ukraine Risk


























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.