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LEISURE LETTER (09/15/2014)

Tickers: LVS, MGM, MAR


  • Sept 15-19: CLSA Investor Forum (MGM, Genting S'pore, WYNN, LVS, SJM, Bloomberry, 
  • Sept 16: Trump Plaza closes
  • Sept 16: FCH investor meetings in Canada
  • Sept 17: Massachusetts Gaming Commission: Boston Decision by Wednesday
  • Sept 17: PENN at Credit Suisse Small & Mid Cap Conference
  • Sept 17-18: Hedgeye Cruise Pricing Survey mid-Sept
  • Sept 18: Imperial Capital Global Opportunities Conference
  • Sept 18: WYN & VAC at MKM Entertainment, Leisure Conference


880:HK SJM – (Macau Business) Employees of SJM have threatened to go on strike during the golden week of holidays beginning on October 1. The secretary-general of the trade union Forefront of Macao Gaming, Cloee Chao, said the workers would strike if their employer and the government failed to sit down with them to discuss their demand for better pay and benefits. This past Saturday, hundreds of SJM employees marched from Sintra Square to the company’s Grand Lisboa and Hotel Lisboa casinos to demonstrate their dissatisfaction with their pay and opportunities for promotion.

Takeaway: SJM facing increased labor actions which may disrupt the vital Golden Week holiday - Labor woes is becoming another negative headline for Macau stocks.


GENM:MK – BB Entertainment Ltd, a unit of Genting Malaysia Bhd, is paying US$24.6 million to RAV Bahamas Ltd for 16.2 acres (6.6 hectares) of land adjacent to Resorts World Bimini on the Bimini Islands, Bahamas. BB Entertainment owns and operates the casino in the property. 

Takeaway: If you can't build a casino in South Florida, build it 50 miles due east of Miami in a lower tax jurisdiction -- the official opening of the first phase of the new Port at ResortsWorld Bimini occurs on Thursday, September 18th with Bahamas Prime Minister, the Rt. Hon. Perry Christie and Executive Chairman of Genting Group, Tan Sri KT Lim attending.


LVS & 1928:HK (GGRAsia) International ad agency Saatchi and Saatchi announced it was appointed by Macau-based casino operator Sands China Ltd to serve as the firm’s creative agency for the mainland China, Hong Kong and Macau markets. One of Saatchi and Saatchi’s main tasks will be to help promote the US$2.7 billion Parisian Macao casino resort. 

Takeaway: The retention of a strong marketing and advertising firm to help drive gaming and non-gaming visits to the Macau and Cotai. 


MAR – announced the appointment of Toni Stoeckl to Vice President of Lifestyle Brands including global responsibility for Renaissance Hotels, AC Hotels by Marriott and Moxy Hotels. Mr. Stoeckl previously served as vice president for the Renaissance Hotels brand. In his newly expanded role, his leadership will drive, define and execute global brand strategies and signature programming for more than 225 hotels around the world.

Takeaway: Efforts to appeal to a younger generation of traveler and hotel guest. 


MAR – encourages guests to tip to housekeepers as part of new tipping initiative called "The Envelope Please"

Takeaway:  A blatant push for guests to pay more…and avoid potential labor relations issues with housekeepers. 


Connecticut-based Starwood Capital Group, is part of a group that purchased Jim Korroch’s SpringHill Suites by Marriott and his Residence Inn by Marriott, both of which are at the Plazzio development at 13th and Greenwich. Also included in the deal is the Hampton Inn & Suites at Regency Lakes at 21st and Greenwich and the Hilton Garden Inn Wichita at Bradley Fair. The total value of the four asset portfolio was greater than $50 million.

Takeaway: It would seem private equity is moving into second and third tier markets in an attempt to achieve higher returns than might be achieved in core, first tier markets. 


Typhoon Kalmaegi – Typhoon Kalmaegi, known as Typhoon Luis in the Philippines, zipped west across the northern part of Luzon, the northern of the three largest islands in the Philippines, on Sunday.  Kalmaegi will then approach southern China's Leizhou Peninsula and Hainan Island Tuesday morning as a category 1 equivalent typhoon and northern Vietnam by Tuesday evening local time, bringing the potential for flooding and some wind damage. The center will stay south of Hong Kong. However, at least some outer rain bands and tropical storm-force gusts appear possible in Hong Kong during that time.


LEISURE LETTER (09/15/2014) - typhoon


Takeaway: The immediate Hong Kong and Macau areas are expected to experience a typhoon Signal 8 by midnight local time, up from current singal number 3 and could result in a modest impact to Macau gaming due to rough seas impacting ferry traffic.  


Singapore Macro:

  • Retail sales +5.5% in July, mainly due to strong vehicle sales.  Ex auto, sales fell 0.4%. 
  • Excluding executive condominiums (ECs), developers sold 432 new units in August, down from the 509 units sold in July, data from the Urban Redevelopment Authority showed

China Macro: 

  • Aug Industrial production +6.9% year-over-year vs +8.7% consensus and +9.0% in July, the slowest increase since 2008
  • Aug Retail sales +11.9% year-over-year vs +12.1% consensus and +12.2% in July 

Takeaway: Disappointing 3Q data from two Asian tigers


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.

Retail Callouts (9/15): KATE, LULU, TGT, AAPL, RSH, FL, H&M

Takeaway: Moved KATE up and LULU down on our Idea List. CHKE blames TGT for miss. H&M trends accelerate – decent barometer for Global Retail.



Retail Callouts (9/15): KATE, LULU, TGT, AAPL, RSH, FL, H&M - 9 15 chart1

This week's changes:

The only change is that we took LULU down a notch within our Best Ideas, and we moved KATE up. We like the controversy around KATE right now, and still think it remains a very BIG idea.  We still like LULU, but the stock has been acting very well, and there's no doubt that this past quarter gave the existing management team breathing room to continue to be incompetent. We still think the new CEO will be the old CEO. But recent results might push that move out by a quarter or two.





Wenesday (9/17)

PIR - Earnings Call: 4:30pm


Thursday (9/18)

RAD - Earnings Call: 8:30am





TGT - Cherokee Q2 Grows Despite Weakness at Target



  • "Sales of Cherokee products at Target’s U.S. stores fell 6.8 percent during the second quarter and were down 4.6 percent during the first half. Henry Stupp, chief executive officer of the Sherman Oaks, Calif.-based brand management firm, said Target in the U.S. 'continues to experience some lingering effects of the data breach that occurred during December of 2013. While foot traffic is improving, it has not yet returned to prior levels.'"


Takeaway: A strong statement from a management team who relies on TGT as a vendor for over 50% of its business. For what it's worth, Cherokee accounts for only 0.04% of Target's business.  When we saw the statement, we thought "the contract must be ending soon, otherwise Cherokee wouldn't have the guts to say something like that.". But it was extended in January through Jan/2017. We'd bet that CHKE gets an angry call from someone in Minneapolis over this one.


H&M - August Sales


Retail Callouts (9/15): KATE, LULU, TGT, AAPL, RSH, FL, H&M - 9 15 chart2


Retail Callouts (9/15): KATE, LULU, TGT, AAPL, RSH, FL, H&M - 9 15 chart3


Takeaway: Big number out of H&M, with 19% growth in sales. We'd argue that this is one of the better retailers to track if you want to get a sense of directional trends in global retail. While not hugely popular in the US, the company has an extremely well diversified base for its 3,341 stores -- over 53 different countries. The US accounts for about 8% of sales, which is similar to France, the UK, and Sweden. Germany is the biggest exposure with about 22%.


FL - Foot Locker to offer online customers same-day delivery



  • "Foot Locker has enlisted crowdsourced delivery service Deliv so it can offer online customers same-day delivery."
  • "Deliv's Application Programming Interface (API) connects directly to Footlocker’s website, allowing shoppers to select same-day or next day delivery for $5."


Retail Callouts (9/15): KATE, LULU, TGT, AAPL, RSH, FL, H&M - 9 15 chart4


Takeaway: Makes sense that FL is turbo charging its e-commerce offering. In the latest quarter, three of the top five e-commerce growth rates through all of retail were UnderArmour, Nike and Adidas. There's no question that the athletic brands are increasingly going around traditional wholesale accounts.




Takeaway: We know Apple didn't exactly have this signage printed up in Cupertino and shipped to Suburban CT. But don't you think it would have at least some handle on how its product is advertised by third-party vendors? Scribbling 'pre-order your iPhone 6/6+' on an old whiteboard with a Sharpie doesn't exactly seem consistent with Apple's image. It is, however, consistent with Radio Shack's.


Retail Callouts (9/15): KATE, LULU, TGT, AAPL, RSH, FL, H&M - 9 15 chart5





AdiBok - Big Investors Pressure Adidas CEO



  • "Adidas  investors are putting pressure on the German sporting-goods giant to accelerate a turnaround, and even discussed with executives the possible removal of the company's longtime chief executive, according to people familiar with the matter."



AMZN - Amazon hits India tax snag



  • "Amazon, which is pouring $2bn into its fast-growing ecommerce business in India, has run into regulatory trouble in the southern state of Karnataka, where tax authorities have ordered some of the online retailer’s third-party merchants to stop storing goods in its warehouses.
  • The dispute with the Karnataka government involves how much tax Amazon should pay on goods sold by third-party merchants and delivered to customers directly from its Bangalore warehouse – and in particular whether the online retailer is liable to pay Karnataka state sales taxes, as physical retailers are."


HBC - Saks Says No Breach of Systems in Credit Theft Scheme



  • "Saks Fifth Avenue said Friday that its network and systems weren’t compromised when six employees at its Fifth Avenue flagship here allegedly stole customers’ credit-card information and used it to purchase more than $400,000 worth of shoes, handbags and other merchandise."


WMT - Wal-Mart will not accept Apple Pay



  • "Wal-Mart Stores has no plans to join Apple’s newly-announced mobile payments system, Apple Pay, which is due to launch in October."
  • "Wal-Mart is supporting a retailer-owned mobile technology group, the Merchant Customer Exchange, which is launching its own mobile wallet application. The application, called CurrentC, is now in pilot and is expected to be rolled out nationwide in 2015, according to The Washington Post.  Best Buy is also among the retailers supporting CurrentC." 


TODAY’S S&P 500 SET-UP – September 15, 2014

As we look at today's setup for the S&P 500, the range is 21 points or 0.43% downside to 1977 and 0.63% upside to 1998.                                                            













  • YIELD CURVE: 2.04 from 2.05
  • VIX closed at 13.31 1 day percent change of 3.98%

MACRO DATA POINTS (Bloomberg Estimates):

  • 8:30am: Empire Mfg, Sept., est. 16 (prior 14.69)
  • 9:15am: Industrial Production, Aug., est. 0.3% (prior 0.4%)
  • 9:15am: Capacity Utilization, est. 79.3% (prior 79.2%)
  • 11am: U.S. to announce plans for auction of 4W bills
  • 11:30am: U.S. to sell $24b 3M bills, $23b 6M bills



    • Senate, House in session
    • 9:30am: FHA Commissioner Carol Galante speaks on future of agency at housing summit hosted by Bipartisan Policy Center
    • 3pm: Senate Homeland Security and Governmental Affairs Cmte hearing on D.C. statehood
    • 8:15pm: Hillary Clinton delivers keynote address at Cardiovascual Research Foundation’s Transcatheter Cardiovascular Therapeutics Conf.



  • Danaher agrees to buy Nobel Biocare for ~$2.2b in cash
  • Heineken spurned SABMiller offer, will stay independent
  • Alibaba said to raise top end of price range to <$70 vs $60-$66
  • Sinopec sells $17.5b stake in fuel unit to investors
  • Micro focus to buy Attachmate in $1.2b all-share deal
  • Denmark’s TDC to buy Norway cable provider Get AS for $2.2b
  • Ackman’s Pershing fund aims to raise $2b in Amsterdam IPO
  • ZF selling steering-venture stake to Bosch to help TRW deal
  • United Rentals, Universal Health to join S&P 500
  • Independent Scotland faces GBP14b hole in budget: study
  • Beheading spurs coalition efforts in fight vs Islamic State
  • Gold industry needs ‘cleansing’ of weakest miners: Fidelity
  • Salix’s budesonide foam for treating colitis awaits FDA verdict
  • Sony’s ‘No Good Deed’ beats ‘Guardians’ to lead NA box office
  • Citigroup, JPMorgan, others report monthly credit-card data
  • BARRON’S ROUNDUP: New AmEx, Alibaba, Lam, Popular, Allstate



  • Commodities Extend Decline to Lowest Since ’09 on China Slowdown
  • Brent Crude Falls to Two-Year Low as China Industry Output Slows
  • Hedge Funds Lower Crop Bets to Lowest Since January: Commodities
  • Nickel Falls for Fifth Session as China Data Indicates Slowdown
  • Arabica Coffee Drops on Outlook for Rain in Brazil; Sugar Falls
  • U.K. Gas Contracts Climb Most in Two Weeks Amid Reduced Flows
  • Iron Ore Rebound Seen by Morgan Stanley as Vale Predicts $100
  • Wheat Drops Below $5 for First Time Since 2010 on Global Output
  • Steel Rebar Rises as Record Low Price Spurs Restocking Demand
  • Cotton Extends Loss in N.Y., Heads for Biggest Drop Since July
  • Gold Industry Needs ‘Cleansing’ of Weakest Miners, Fidelity Says
  • H.K. Gold Bourse Approved to Build Precious-Metal Vault in China
  • Major Hurricane Odile Set to Rake Mexico’s Baja California Sur
  • Palm Oil Seen Dropping as Mistry Has Buy Call on Planter Stocks


























The Hedgeye Macro Team

















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%


Takeaway: The Hedgeye Macro Playbook is a daily 1-page summary of our core ETF recommendations, investment themes and noteworthy quant callouts.

CLICK HERE to view the document.


Darius Dale

Associate: Macro Team

European Banking Monitor: Financials CDS Wider on the Week

Below are key European banking risk monitors, which are included as part of Josh Steiner and the Financial team's "Monday Morning Risk Monitor".  If you'd like to receive the work of the Financials team or request a trial please email 




European Financial CDS - Swaps mostly widened in Europe last week (28 of 38). The tide of short-term momentum around EU QE-Lite appears to be receding as swaps were down on average across the EU banks complex.


European Banking Monitor: Financials CDS Wider on the Week - chart1 financials cds


Sovereign CDS – Sovereign swaps continue to drop on a month-over-month basis. Irish sovereign swaps tightened by -3.9% (-2 bps to 50 ) and Spanish sovereign swaps widened by 7.8% (4 bps to 61).


European Banking Monitor: Financials CDS Wider on the Week - chart2 sovereign CDS

European Banking Monitor: Financials CDS Wider on the Week - chart3 sovereign CDS

European Banking Monitor: Financials CDS Wider on the Week - chart4 sovereign


Euribor-OIS Spread – The Euribor-OIS spread (the difference between the euro interbank lending rate and overnight indexed swaps) measures bank counterparty risk in the Eurozone. The OIS is analogous to the effective Fed Funds rate in the United States.  Banks lending at the OIS do not swap principal, so counterparty risk in the OIS is minimal.  By contrast, the Euribor rate is the rate offered for unsecured interbank lending.  Thus, the spread between the two isolates counterparty risk. The Euribor-OIS spread tightened by 3 bps to 14 bps.


European Banking Monitor: Financials CDS Wider on the Week - chart5 Euriobor OIS Spread


Matthew Hedrick



Ben Ryan



Beware or Reversals

Client Talking Points


Pure currency devaluation by ECB President Mario Draghi worked; saving the economy didn’t – remember what these Policies To Inflate do (it’s all about asset prices, not real economic growth). Risk range for the EUR/USD is really wide at $1.28-1.33.


2 straight down weeks for the Russell 2000, right back to down for 2014 year-to-date  – one of the biggest bubbles out there remains the liquidity bubble in small/mid cap stocks. The Russell 2000 is down -4% since peaking (on no volume) July 7th, 2014.


China continued to chug along overnight with the Shanghai Comp up another +0.3% to another year-to-date high of +14%. China and India remain our 2 favorite equity markets in the world. India’s WPI down to +3.7% AUG vs 5.2% JUL. Dr. Raj winning…

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


India's wholesale price inflation slows (again) to +3.7% y/y AUG vs +5.2% JUL - great for India's economy



The first duty of a man is to think for himself.

-José Martí


Gold bounces +0.5% to $1235 that is up +2.7% year-to-date (vs. Russell 2000 -0.3% 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.