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Takeaway: Our Mass Deceleration thesis is in full play and the stocks are all down. There is precedent for lower, however.

Chart of the day



The chart below displays the indexed 52 week trading range for the major stocks with Macau exposure:

  • Our Mass Deceleration thesis unfolded faster than we expected, driving the last two legs of the 6 month Macau bear market.
  • Yes the stocks are beat up but there is precedent for even lower prices – looking over the past 12 months, not all stocks are on their backs.
  • From this view, MPEL and SJM look the most beat up while WYNN, Wynn Macau, and MGM are still trading above the midpoint of their respective 52 week range.
  • We’re not there yet, but when we see fundamental stabilization or a catalyst emerge, Galaxy (0027HK) and LVS look the most interesting to us on the long side.

MACAU STOCK RANGES - stock prices

Keith's Macro Notebook 9/3: Russia | Oil | UST 10YR

Retail – Big Sales Datapoint Today

Takeaway: Big 4.8% ICSC number, even adjusting for easy compare. If a retailer can’t smoke numbers today, then when? Good oppty to source some shorts.


Is it any wonder why even the poorest quality retailers are putting up great numbers? The general sales environment continues to remain strong in the US, with numbers for the week 4.8% higher than last year according to ICSC (index of 80 retailers excluding restaurant and vehicles).  That's the highest weekly rate we've seen in over 3-years. Compares vs last year were easy this week, but even looking at a 2-year run-rate the index is approaching highs for the year.   To be clear, US retailers should be killing it in this kind of environment. Most are. But for companies that but up questionable quality numbers (like KSS) but get rewarded anyway, we'd simply ask what they'll look like when this strength ends?


Retail – Big Sales Datapoint Today - 9 3 ECON chart1


Retail – Big Sales Datapoint Today - 9 3 ECON chart2


By comparison, Eurozone Retail Sales were also released this morning for July, and we're looking at 0.8% growth yy, which is down from +1.9% in June. Keep in mind, however, that sales for 2013 were below 2012 levels almost every month of the year.

Retail – Big Sales Datapoint Today - 9 3 ECON chart3

Early Look

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Mortgage Apps - August Anemia Complete

Takeaway: Purchase demand is tracking down 6% Q/Q with August data now all in.

Our Hedgeye Housing Compendium table (below) aspires to present the state of the housing market in a visually-friendly format that takes about 30 seconds to consume


*Note - to maintain cross-metric comparability, the purchase applications index shown in the table below represents the monthly average as opposed to the most recent weekly data point


Mortgage Apps - August Anemia Complete - Compendium


Today's Focus: MBA Mortgage Applications

The Mortgage Bankers Association today released its weekly mortgage applications survey data for the week ended August 29th.


The Composite index managed a +0.2% gain as the YTD low in rates continues to support marginal refi-activity.  Purchase demand declined -1.5% sequentilly with the index holding below the 170-level for an eighth straight week as the multi-decade dearth in demand persists to close out August. 


  • Demand Anemia, Week 8:  The purchase Index fell for the 4th time in 5 weeks, declining -1.5% WoW to 165.8 on the Index. This marks the eighth consecutive week at the 160-level and the softest demand streak since April of 1995.  Purchase demand remains down -12% YoY and is currently tracking -6% QoQ. 
  • Refi & Rates:   Refinance activity increased for a 3rd straight week, rising +1.4% sequentially alongside an incremental -3bps decline in the 30Y FRM contract to 4.25%.  Rates have declined -10bps over the last month and currently sit at their lowest level YTD. Refi activity remains down -26% YoY but continues to improve as we move through the easiest 2013 comps. 


We’ve discussed the regulation-catalyzed shift towards Nonbank origination and the potential challenge to intertemporal reliability and reported demand as measured by the MBA survey.  The WSJ and Inside Mortgage Finance (Here) reported that nonbank market share of mortgage originations have increased 6% to 23% in 1H14 vs. 17% in 1H13. While the MBA survey states that it covers 75% of all US retail residential mortgage applications, it does not count applications submitted through the broker/correspondent/wholesale channels.   


Under an assumption that the full 6% shift went uncaptured by the MBA survey and allowing for a lower pull-through rate (i.e originations to applications ratio) on non-QM loans, the demand decline moderates but the broader reality of ongoing softness in the housing market remains largely unchanged.  From here, demand comps across the MBA Purchase Application and Existing & Pending Home Sales series continue to ease.


Mortgage Apps - August Anemia Complete - Purchase   Refi YoY


Mortgage Apps - August Anemia Complete - Purchase Qtrly Ave


Mortgage Apps - August Anemia Complete - Purchase LT w Summary Stats


Mortgage Apps - August Anemia Complete - Purchase Apps 8Wk Rolling Ave


Mortgage Apps - August Anemia Complete - Composite Qtrly   YoY  


Mortgage Apps - August Anemia Complete - Composite LT w Summary Stats


Mortgage Apps - August Anemia Complete - 30Y FRM



About MBA Mortgage Applications:

The Mortgage Bankers’ Association’s mortgage applications index covers more than 75% of mortgage applications originated through retail and consumer direct channels. It does not include loans delivered through wholesale broker and correspondent channels. The MBA mortgage purchase applications index is considered a leading indicator of single-family home sales and construction. Moreover, it is the only housing index that is released on a weekly basis. 



The MBA Purchase Apps index is released every Wednesday morning at 7 am EST.



Joshua Steiner, CFA


Christian B. Drake

LEISURE LETTER (09/03/2014)



  • Sept 3:
    • MGM China (2282:HK) at Nomura China Investor Forum
    • Sands China Ltd (1928:HK) at Nomura China Investor Forum
    • MTN - expected ruling from Judge Harris in PCMR vs. Talisker
  • Sept 4:  MGM at Mizuho Investment Conference
  • Sept 6-8: China/Macau - Mid-Autumn Festival
  • Sept 8: MAR Analyst Meeting
  • Sept 9: 
    • GLPI & HPT at Wells Fargo Net Lease REIT Forum
    • EXPE & OWW at DB Technology Conference


BEL:PM (GGRAsia) reports indicated CLSA Ltd is pre-marketing the PHP8.7 billion (US$200 million) follow-on share sale to expand its investor base with the official book opening on September 22 and a listing date of October 2. Reportedly, CLSA Ltd is the sole global co-ordinator of the operation, while Credit Suisse and Macquarie are joint bookrunners

Takeaway: Widely anticipated since BEL's filing on July 22.


IGT (Macau Business) Gaming equipment suppliers LT Game Ltd and International Game Technology will together unveil a concept called the "Total Casino Solution" at this year’s Macao Gaming Show, which will take place from November 18 to 20 at the Venetian Macao casino-resort.

Takeaway: Could this be the next iteration of the systems business?


LVS (Korea Herald) recently proposed to the Seoul government the construction of “a truly iconic building” in Jamsil, the site of the 1988 Olympic Games main stadium located in the affluent southern Seoul area. It is close to the Hangang River that runs through the capital city with a population of over 10 million, and Lotte World Tower, a 123-story building currently under construction.  LVS proposed to moving the baseball stadium to another location in order to optimize the redevelopment potential of the Jamsil site as a leading international meetings, incentives, conferences and exhibitions destination. 

Takeaway:  Another MICE opportunity or something larger?


BEE – announced that it has closed a ten-year, $115.0 million limited recourse loan secured by the InterContinental Miami hotel.  The Company had recently repaid the $85.0 million financing previously encumbering the property. Under the terms of the agreement, the loan bears interest at a fixed rate of 3.99% and has a ten-year term.  Deutsche Bank Securities Inc. originated the financing.

Takeaway: This financing replaced the existing $85mm loan that encumbered the property.


DRH – announced two acquisitions for a total of $174.2 million. First, the newly constructed 282-room Hilton Garden Inn/Times Square Central located on 42nd Street between Avenue of the Americas and Broadway in New York for a purchase price of $127.2 million ($451,000/key). Second, the 106-room boutique hotel, The Inn at Key West in Key West, Florida, for a purchase price of $47.5 million ($448,000/key). As of June 30, 2014, DRH has $253.0 million of unrestricted cash on its balance sheet and no outstanding balance on its $200 million senior unsecured credit facility. 

Takeaway: DRH's most recent equity offering was for 20 million shares at $10.03 on July 10, 2012.  Given the recent stock price and now low levels of cash, we would not be surprised to see an equity offering - especially as we approach year end 2014.


HLT – announced "China Golden Week" promotion for mainland China and Hong Kong. The promotion will reward customers who book directly through Hilton Worldwide's portfolio of hotels in mainland China and Hong Kong with exclusive discounts as well as, offering HHonors membership points to our valuable members. China Golden Week promotion from September 1 to October 10, 2014, all fully prepaid direct bookings up to two days prior to arrival will enjoy up to 34% off at any participating hotels and resorts under Hilton Worldwide across mainland China and Hong Kong

Takeaway: Hilton attempting to capitalize on its vastly larger China lodging footprint during the all important Golden Week.


HOT – announced an agreement with Hainan Jianfeng Tourism Development Co., Ltd. to debut China’s first W Retreat and the second St. Regis resort on Hainan Island. Scheduled to open in 2019 and 2020, respectively

Takeaway: Hainan, once thought to be the next gaming mecca, is quickly becoming a new city for high-end executive offices and technology firms.


RCL – announced that it has entered into an agreement to sell its 1,814-passenger cruise ship Celebrity Century to Exquisite Marine Ltd., a holding company led by Ctrip.com. Royal Caribbean Cruises will continue to operate Celebrity Century until April 2015. 

Takeaway: A smart move by RCL on 2 fronts - allows them to get rid of an old under performing asset while establishing a JV to manage the ship's operations while also broaden its relationship with Ctrip, who's a powerhouse OTA in China. 


Tourism chief forecasts single-digit visitor growth (Macau News)

Macau Government Tourist Office (MGTO) Director Maria Helena de Senna Fernandes said she believes that in the next few years, growth in the number of visitor arrivals will remain in single digits.  She also said her bureau would be more focused on convincing visitors to extend their stay. Currently, visitors’ average stay amounts to just one day.

Takeaway:  Through July, Macau visitation has grown 8% ytd in 2014.  Changing the day trip perception of Macau will be difficult.


Macau International Airport – handled 520,000 passengers in August, 6.5% more than a year earlier and the most in any month yet. Macau International Airport Co Ltd says the airport handled 3,400 landings and takeoffs, 1.4% more.

Takeaway: The visitors are coming to Macau, but just not gambling as much.


Trump Plaza Atlantic City – New Jersey Division of Gaming Enforcement approved the closing to Trump Plaza and said the property can cease gaming operations at 6 a.m. Sept. 16, and that casino-cage operations should continue until 8 a.m.

Takeaway: The closing of the third casino in a mere two weeks.


China Economic Data - The non-manufacturing purchasing managers’ index (PMI) rose to 54.4 in August from 54.2 in July.  Additionally, the HSBC Holdings Flash PMI survey was 54.1 versus 50.0 in July.


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.

What’s The Bull Case?

Client Talking Points


Putin continues to try to puppeteer markets, bouncing the Russian Trading System (and Ruble) from the lows. The RTSI is up +4% this morning and all of Europe is chasing that (on bad German/French/Italian economic data - ISM Services for Italy breaches 50 in AUG to 49.8 vs 52.8 JUL).


At least Vladimir Putin didn’t leak the ceasefire to his boys yesterday; I guess Putin the peacemaker is the new bull case for those who love U.S. consumer stocks – makes sense, until the companies have to report. After getting smoked yesterday, Brent Oil holds $100.74 TRADE support, but remains bearish TREND.


UST 10Yr Yield is up +11 basis points in less than 2-days, so this will be our worst start to a month since bonds got blasted in 1st week of July (to higher-lows); they chased the Russell to 1208 on July 7th on that too – painful position for us in the moment then, and it is now – staying with long TLT, short RUT.

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. After almost a year of pushing for change at Bob Evans, activist investor Sandell Asset Management is claiming a big victory. Activist investor Sandell won at least five seats on the board of the restaurant operator and food processor, based on preliminary results from the company’s annual shareholder meeting last month. This is precisely the sort of bullish catalyst that was central to our high conviction on BOBE.


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


Another rock solid econ print on the consumption side of the UK economy, AUG Services PMI 60.5 vs 59.1 last



You get self-satisfaction from pushing yourself to the limit, knowing that all the effort is going to pay off.

-Mary Lou Retton


Our two favorite stock markets; China is up another +1% to 11.5% year-to-date and India is up another +0.7% to +30.1% year-to-date.

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.