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LEISURE LETTER (09/10/2014)

Tickers: MGM, LVS, H, RCL, MTN


  • TODAY: 
    • MGM appears before New Jersey Casino Control Commission
    • WYNN appears before Massachusetts Gaming Commission
  • Sept 11:
    • Macau Legend at Credit Suisse Macau Gaming Day
    • MGM China at Credit Suisse Macau Gaming Day
    • Sand China Ltd at Credit Suisse Macau Gaming Day
  • Sept 16: Trump Plaza closes
  • Sept 17-18: Hedgeye Cruise Pricing Survey mid-Sept


LVS & 1928:HK (The Standard)  According to CEO Ed Tracy, Sands China is posied to expand its 25% market share.  Sands China is planning to hire extra 6,000 workers for the hotel St. Regis Macao and hotel and casino Parisian Macau.  The company currently has 9,000 rooms in five hotels. However, the opening of St. Regis will increase it by 400 rooms and the opening of the Parisian will add another 3,000.  Tracy further commented “We have 200,000 customers on weekdays and 500,000 during holidays; the hotels have an overall occupancy rate of 96%.”

Takeaway:  Tracy turning up the volume on the future "growth" story (2016 by our timing schedule) when investors are now more concerned about downside pressures to Mass and VIP segment revenues.


LVS (Strait Times) – British celebrity chef Gordon Ramsay has gone into partnership with Marina Bay Sands and will be opening a restaurant at the integrated resort next year.  He will be opening the casual Bread Street Kitchen.

Takeaway:  Non-gaming is the growth vehicle with the casino flattish.


MGM – MGM officials will go before the New Jersey Casino Control Commission later today, in an attempt to reacquire the company's stake in Borgata.  Several witnesses are expected to testify in the hearing, which would determine whether or not the company is suitable to re-qualify for a license here.

Takeaway: This event is expected.


MGM (Bloomberg) has indicated it would invest up to $10 billion to develop a Japanese casino if they’re legalized and would borrow from Japanese banks to tap on their low rates and local knowledge. “We like low interest rate money, it’s important,” Bill Hornbuckle, president of the Las Vegas-based gaming resorts operator, said.  “If you’re going to be borrowing between $3 billion and $7 billion, you’d want to be able make sure you get through the day.” MGM is seeking Japanese consortium partners ranging from financial institutions to real estate developers, the executive said, as Japan’s ruling party seeks to legalize casinos by as soon as the next parliamentary session starting in the fall.

Takeaway: Inexpensive debt - the elixir of earnings growth.  Still need legislation to pass and MGM to be selected as a concessionaire. 


H – as a follow-up regarding the resignation of CFO Gebhard Rainer, late yesterday Coach named Mr. Rainer the company's new President and COO effective September 29, 2014.

Takeaway: Confirms Mr. Rainers departure from Hyatt was related to a better opportunity and not indicative of any internal Hyatt issues.


RCL – A cruise retailer commented that: "Q4 Caribbean is definitely weak. Worse than usual because of overcapacity.  Predictable, in my view, since overcapacity has existed all year."  Another retailer sent a RCL memo stating "Q4 Caribbean Price Decrease.  We have taken fairly broad pricing decreases on Q4 Caribbean products. They would not do this if business was strong."

Takeaway:  We had noted RCL pricing lagging behind its competitors in the Caribbean in our mid-August pricing survey.


NCLH – Bonus commission offer from Norwegian TTG Digital

NCL announced this week that bookings made between September 17 and October 31, for sailings in 2015, would be eligible for an all-inclusive bolt-on, priced between £215pp on a three-night cruise and £735pp on 14 nights.  Agents can earn 10% commission on both the cruise and all-inclusive elements booked during this period.


According to Francis Riley, NCL's VP and GM,  NCL launched similar all-inclusive packages a month ago in the US, which, after an initial “slow burn”, had proven popular.  The deal-period has now been extended in the US - a move which Riley said could also happen in the UK.  The all-inclusive offer is effective for all sailings on all ships in 2015 ,except Pride of America, which sails around Hawaii, where legislation on the sales of drinks packages differs.

Takeaway:  The all-inclusive deals continue to gain steam.  


NCLH – (Seatrade Insider)  Oceania Cruises plans to provide free Internet access to travelers booked in suites and concierge-level staterooms on its five ships. This is the first time the line has offered a free Internet program, with the new benefit commencing during the 2015 winter season.  The news comes just after close rival Azamara Club Cruises' announcement that it will discontinue free Internet as a benefit of its loyalty program, starting Jan. 1.

Takeaway:  Still not sure if Internet access will play a major role in a cruiser's decision.


MTN – Park City Mountain Resort spokesman Andy Miller said Tuesday PCMR posted the $17.5 million bond to ensure the property will open for a 51st straight season. By posting the bond, PCMR avoiding enforcement of Judge Ryan Harris' eviction notice. Additionally, the bond posting allows PCMR additional time to negotiate with MTN regarding future operations. The bond includes $15 million for rent, plus an additional $2.5 million to cover interest and attorney's fees. Judge Harris also ruled PCMR will need another bond to stay eviction and operate the resort for the 2015-2016 ski season if litigation has not concluded, and the parties have not reached a settlement. The bond for the 2015-2016 season would be $19 million -- effectively $4 million of additional collateral.

Takeaway: A modest near-term headwind for MTN. However, MTN will continue its push to secure the operational rights to Park City.


Monmouth racetrack plans to be the first to offer sports betting in NJ NJ.com

Monmouth Park today said it will offer wagering on professional athletics by the end of the month.  Terming the Christie administration’s move “huge” and “the saving grace” to the horseracing industry, Monmouth Park adviser Dennis Drazin said Monmouth was forecasting $1 billion worth of sports bets and a $75 million commission to be split between Monmouth Park and its UK-based partner, the sports-betting firm William Hill, just in the first year of operations.  “And if nobody else does it, we’ll see an increase in that revenue,” Drazin said.  Indeed, Monmouth Park is alone among state-licensed gambling operations saying it plans to offer sports betting, and likely to remain so unless federal courts allow it.

Takeaway: Monmouth may indeed have a monopoly for a while since Meadowlands and PENN's Freehold Raceway are holding out for a federal court approval on sports betting. 


Las Vegas Housing Prices  (Vegas Inc) The median sales price of single-family homes in August was $200,000, same as July but up 9.9% YoY.  The last time prices rose less than 10% YoY was in July 2012.

Takeaway: Slowing housing price growth which we highlighted on July 16, 2014 note "LV LOCALS: THE MIRAGE OF A RECOVERY".  


HKSE listed stocks weak - the superfecta of negative news included:

1) BofA strategist David Chui comments that China’s market rally will evaporate.

2) Premier Li was quoted saying that China can't rely on easy credit policy for growth.

3) Slower than forecasted M2 growth during August.

4) Standard Chartered cut gaming sector outlook.

In stock trading action:

0027  (-2.77%)

0880  (-3.52%)

1128    (-3.44%)

1680   (-1.64%)

1928   (-2.40%)

2282  (-2.63%)

0577   (-2.94%)

Takeaway: Difficult to catch the falling knife, much easier to buy 5% off the bottom than chase stock prices lower.


Macau Entertainment – The much awaited battle between Manny Pacquiao and Floyd Mayweather Jr. is once again gaining steam as Pacman and his promoter, Top-Rank, revealed they are currently negotiating with Money May's camp for a possible showdown in 2015. The eight-time division world champ added that a fight with Mayweather could happen next year, probably in Dubai with at least $225 million (conservative estimates) at stake for their pound-for-pound slugfest. But first, Pacquiao will fight undefeated American Chris Algieri on November 22 in Macau.

Takeaway: The battle in the ring versus the battle outside the ring for promotional and venue sponsorship dollars.


Vietnam Gaming to Open to Locals – as follow-up to our August 13, Leisure Letter commentary on this topic, Vietnam may soon start allowing locals to play in their casinos as part of the plans by the Hanoi government. Ngo Van Tuan, Head of the government’s Banking and Finance Department said that the intention is to submit the final draft of a new casino decree to Prime Minister Nguyen Tan Dung as early as October, with approval likely before the end of the year. The proposal is believed to be based on the model used in Singapore where locals pay a levy (either daily or annual) to enter the casino but foreigners are permitted entry for free. This is supposedly designed to verify sufficient financial ability, to ensure that only those who can afford to gamble can enter the casinos.

Takeaway: An apparent clear path to legalization of locals gaming in Vietnam - a minor competitive headwind for Macau and Singapore.


Nassau Bahamas Redevelopment – Chinese interests (likely, China State Construction) have developed their own EDAW-style comprehensive plan to revitalize the city of Nassau - involving their own real estate acquisitions and developments - and quietly presented this to the Government.  The new Chinese plan sheds new light on China State Construction’s interest in acquiring the British Colonial Hilton, which is widely regarded as the economic anchor for downtown Nassau and Bay Street.  However, Roger Stein, who previously attempted to re-develop South Ocean, and formerly bid to acquire the British Colonial Hilton in partnership with global asset manager, Och-Ziff, has submitted a new Letter of Intent to buy the downtown Nassau property. Stein is now expected to partnered with a New York-based hotel group in a $60 million-plus offer, but the British Colonial Hilton’s current owners - Aubaine Capital and the Canadian Commercial Workers Industry Pension Plan (CCWIPP) - are thought to favor the expected Chinese bid.  

Takeaway: This redevelopment opportunity is important because the British Colonial Hilton is immediately adjacent to the Nassau Bahamas Cruise Terminal and Festival Place Shopping Mall.  


China Money Supply as measured by M2, was up 12.8% year-over-year during August -- the slowest growth in five months. August's growth was slower than the 13.5% rise at the end of June and lower than 13.5% median forecast


Chinese Economic Growth grew 7.4% in the first half of the year, down 7.7% growth last year and slightly lower than the 7.5% target set by the government.


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.

Keith's Macro Notebook 9/10: Vix | Volume | UST 10YR

Down Day, Up Volume

Client Talking Points


Immediate-term TRADE oversold signals happen, a lot, and they usually happen in the SPX and RUT when we get an immediate-term TRADE overbought signal in the VIX (check, check). Support for the SPX is 1982 and resistance for the VIX is 13.83.


Consistent within the pattern of behavior we’ve seen since July 7th, U.S. stock market DOWN days have more volume than the UP days. Yesterday’s Total U.S. Equity Market Volume (including dark pool) was +9% and +3% vs its 1 and 3 month averages #asymmetry.


The UST 10YR at 2.51% frustrated some yesterday, but understand the new narrative that the Fed is going to “change its forward guidance” – some read that as hawkish, while we read that as dovish, moving to “data dependent” vs “calendar expectations” means the Fed can and will get more dovish as the U.S. economic data slows. We see no support for the UST 10YR to 2.31.

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

The Vanguard Extended Duration Treasury (EDV) is an extended duration ETF (20-30yr). Now that we have our first set of late-cycle economic indicators slowing in rate of change terms (ADP numbers and the NFP number), it's time to really think through the upcoming moves of this bond market. We are doubling down on our biggest macro call of 2014 - that U.S. growth would slow and bond yields fall in kind.


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.


Restoration Hardware remains our Retail Team’s highest-conviction long idea. We think that most parts of the thesis are at least acknowledged by the market (category growth, real estate expansion), but people are absolutely missing how all the pieces are coming together to drive such outsized earnings growth over an extremely long duration. The punchline of our real estate analysis is that a) RH stores could get far bigger than even the RH bulls seem to think, b) Aside from reconfiguring 66 existing markets, there’s another 19 markets we identified where the spending rate on home furnishings by people making over $100k in income suggests that RH should expand to these markets with Design Galleries, and c) the availability and economics on large properties for all these markets are far better than people think. The consensus is looking for long-term earnings growth of 28% -- we’re looking for 45%.  

Three for the Road


China increased Nickel Ore imports from the Philippines 3-fold on Indonesia export ban (now 61% of total unprocessed Ore). #meaningful



If you are not willing to risk the usual you will have to settle for the ordinary.

-Jim Rohn


6.9 millimeters, the width of the iPhone 6 that Apple unveiled yesterday.

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CHART OF THE DAY: Scottish Independence Polls and Effect on British Pound $FXB

CHART OF THE DAY: Scottish Independence Polls and Effect on British Pound $FXB - UK EL


In the Chart of the Day, we show the impact that the series of YouGov.com polls have had on the British Pound. While certainly there are other factors at play, the increasingly pro-Independence polls have been a defined catalyst for aggressive selling of British Pounds.

Hell on Wheels

“Mr. Bohannon, Do you want to build this railroad?”

-Senator Grant in the AMC T.V. show, “Hell on Wheels”


Similar to our office, I’m sure most of you don’t have much time to watch T.V., but every once in a while a great show comes around that is really hard to turn off.  A popular one at Hedgeye as of late is AMC’s, “Hell on Wheels.”


Hell on Wheels - HOW facebook timeline 850x315


The show is about the epic struggle to build a trans-continental railroad. Setting aside the obvious struggles of weather, dealing with Native tribes (who felt their treaties were being violated), and limited technology, the building of the transcontinental railroad also occurred at a time when the nation was healing itself from the Civil War.  As a result many former Union and Confederate soldiers worked side-by-side on the railroad.


As Wikipedia describes it:


“The First Transcontinental Railroad (known originally as the "Pacific Railroad" and later as the "Overland Route") was a 1,907-mile (3,069 km) contiguous railroad line constructed between 1863 and 1869 across the western United States to connect the Pacific coast at San Francisco Bay with the existing Eastern U.S. rail network at Council Bluffs, Iowa, on the Missouri River.”


The epic struggle to connect the two sides of the continent took more than six years, but once it was completed dramatically changed the face of commerce in the United States. 


Who knows, perhaps the iWatch will do the same?


Back to the Global Macro Grind...


In the global macro world, the epic struggle du jour seems to be related to Scottish independence.  Simply, will the Scots decide to leave the United Kingdom, or not?  


A few weeks ago, no one was even considering this as a potential global macro issue, but after a recent YouGov.Com poll that showed a slight majority of Scots voting Yes (51%) to independence versus No (49%), the British pound was sold dramatically and Scottish independence became a hot topic with the manic media.


Hell on Wheels - dj


So, will the Scots vote for independence on September 18th?  If we rely strictly on the YouGov.com poll, it would seem there is a real chance of this occurring.   Practically speaking, though, as we have written often in the past it is very unwise to rely strictly on one poll.  In fact, there are a couple of key quantitative points that speak in contrast to the YouGov.com poll:

  • First, the YouGov poll that showed a 2% edge for the Yes side was literally the second poll ever (of those polls approved by the British Polling Council) to show the Yes side ahead.  The other Yes poll was taken by the Scottish National Party back in mid-2013;
  • Second, the most recent poll aggregates (though some admittedly occurred before the most recent debate in which pro-independence leader Alex Salmond was widely judged to have won) still show a lead for the No vote outside the margin of error.  Specifically, a poll aggregate issued by Strathclyde University on September 1st showed the No side ahead by 10 points and a poll aggregate from The Guardian on September 3rd showed a similar 10 point lead.
  • Finally, the online betting website, Bet Fair, shows the market for Scottish Independence at more than 2:1 for No independence.  (Incidentally, there have been almost $5 million pounds wagered on Bet Fair for this topic.)

In the Chart of the Day below, we show the impact that the series of YouGov.com polls have had on the British Pound.   While certainly there are other factors at play, the increasingly pro-Independence polls have been a defined catalyst for aggressive selling of British Pounds.


Setting aside the polls and betting markets, the most notable reasons for Scotland to stay a part of Great Britain are related to the Scottish economy itself.  Hedgeye’s European Analyst Matt Hedrick highlighted a number of major risks to the Scottish economy should the Scots pursue independence, including:

  • Currency – UK politicians have stated that Scotland could not use Sterling. The country would have to issue its own currency
  • Central Bank – until the formation of a central bank there is no backstop for sovereign debt
  • Massive Capital Flight –investors could pull money out of Scottish banks en masse that would destabilize the financial system 
  • EU Membership – it’s unclear if an independent Scotland would be granted EU membership, which could have huge trade implications
  • Regulation – uncertainty if banks would remain regulated under the UK regulatory authority? Tax and trade regulations also uncertain
  • Economic Drag – prominent financial firms likely to move to London
  • Budget –  the Institute for Fiscal Studies pointsout that Scotland's Deficit could be 4.6% if independent. Low credit quality could negatively impact debt raises, and push the country's debt and deficit levels higher, a vicious cycle.

It is certainly possible, even if unlikely, that the most recent YouGov.com poll is the harbinger of Scottish Independence.  But for this to be accurate it would fly in the face of all other polls, the betting markets, and really any semblance of rational analysis by the Scots related to their own economy.  So our view continues to be that the No vote will prevail and the British Pound will rally accordingly.


That said, given the weak nature of the Scottish economy and the fact that 2 out of every 3 Scots are on some form of social welfare, over the long run a Great Britain without Scotland might actually be a stronger economy and certainly more healthy from a fiscal perspective.  So on some level, perhaps the British Pound is in a win-win situation given its recent sell off.  A No vote leads to a relief rally and a Yes votes leads currency traders to asses s United Kingdom’s much improved fiscal health without Scotland, which leads to a long term tail wind for the Pound.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 2.31-2.52%


RUT 1151-1171

Shanghai Comp 2

VIX 11.34-13.83

Brent 98.74-102.99 


Keep your head up and stick on the ice,


Daryl G. Jones

Director of Research


Hell on Wheels - UK EL

Mortgage Apps - From August Anemia to September Slowdown

Takeaway: Plumbing new lows in purchase demand, at least according to the Mortgage Bankers Association Survey.

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 - From August Anemia to September Slowdown - Compendiium


Today's Focus: MBA Mortgage Applications

The Mortgage Bankers Association today released its weekly mortgage applications survey data for the week ended September 5th.


The Composite Index hit a new 10Y low in the holiday week, declining -7.2% sequentially with Refinance and Purchase demand sliding -10.6% and -2.6% WoW, respectively. As this morning's data is reflecting a holiday week, we'll hold our breath for next week's print for confirmation, but, regardless, the intermediate-term trend remains down.

  • From August Anemia to September Slowdown: The purchase Index fell for the 5th time in 6 weeks, declining -2.6% WoW to 161.5 on the Index. This marks the 9th consecutive week at the 160-level and the softest demand streak since April of 1995 – note that outside of 1 week during the peak weather distortion in February (155 on 2/21/14), the Purchase index hasn’t fallen below the 160-level since 3Q11.  Purchase demand remains down -12% YoY and is currently tracking -6.4% QoQ.
  • Refi & Rates:   Refinance activity fell -10.6% WoW with the holiday and the sequential rise in rates both playing negatively.  Rates on the 30Y FRM contract increased for the 1st time in a month, rising +2bps sequentially to 4.27%.  Refi activity remains down -17.2% YoY but the rate of change continues to improve as we move through the easiest 2013 comps.


As we’ve been apt to highlight of late, 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.  Given the regulation catalyzed share-shift in the mortgage origination channel, it’s likely the MBA survey is modestly understating current demand. 


Mortgage Apps - From August Anemia to September Slowdown - Purchase   Refi YoY


Mortgage Apps - From August Anemia to September Slowdown - Purchase 9wk rolling Ave


Mortgage Apps - From August Anemia to September Slowdown - Purchase LT w summary stats


Mortgage Apps - From August Anemia to September Slowdown - Purchast Qtrly Ave


Mortgage Apps - From August Anemia to September Slowdown - Composite LT w summary stats


Mortgage Apps - From August Anemia to September Slowdown - 30Y FRM


Mortgage Apps - From August Anemia to September Slowdown - 30Y FRM Mo Ave


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

Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.51%
  • SHORT SIGNALS 78.32%