LEISURE LETTER (09/23/2014)



  • Sept 23: CCL 10 am F3Q Earnings Call
  • Sept 24: MTN 11:30 am FYE 2014 Earnings Call
  • Sept 24: Revel Auction
  • Sept 24: Hedgeye Snakeye in Las Vegas - Research Meetings
  • Sept 29 - Oct 2: G2E


BYI & SGMS – Both companies now anticipate the merger transaction to close by the end of 2014.  Previous target was for Q1 2015.

Takeaway: Confident in their closing progress. 


GLPI & PENN (Sioux City Journal) With only a week left before its removal deadline, owners of the Argosy Sioux City have yet to move the riverboat from its moorings on Larsen Park Road. After the floating casino ceased operations on July 30, owners Iowa Gaming Co. and Belle of Sioux City had 60 days to move the vessel and vacate the Sioux City riverfront, under a provision in the Argosy's lease with the city. Even with the Sept. 28 deadline only days away, the boat hasn't budged.  Sioux City Mayor Bob Scott said he hopes the facility is removed by the deadline but has concerns that it may not happen. He said the casino's owners may say the 60-day "clock didn't start" until Sept. 4, when a federal judge in Pennsylvania dismissed a bankruptcy case involving the former casino. The casino owners filed for Chapter 11 protection in May in an attempt to block Iowa gaming regulators from closing the vessel.

Takeaway: Bad form all around, Just remove the boat.


MGM (LVRJ) MGM CEO Jim Murren has indicated MGM is considering expanding the Borgata entertainment programming via its relationship with Anshutz Entertainment Group

Takeaway: Efforts to increase Borgata's desirability as competition for gaming spend escalates across the Northeast corridor.


102:HK – Summit Ascent Holdings announced phase one of its casino project in Russia will be delayed until April 2015. Summit Ascent previously said the first phase of the project, near Vladivostok, was targeted to open in the last quarter of this year. The casino complex is expected to have 119 hotel rooms, 800 slot machines, 25 VIP gaming tables, 15 mass market baccarat tables and 25 mass market tables providing other table games. The company highlighted several reasons for the delay, including “delay encountered in the re-design approval by the local government authorities”, a re-design needed to bring the project up to an “international standard” as well as issues encountered in the procurement of import materials and equipment, which needed to be certified by the relevant government authorities.

Takeaway: Development delays and costs going higher.


SNOW – disclosed via 8K, on September 19, 2014, Le Sommet Property Management Inc., a wholly-owned subsidiary of Intrawest Resorts Holdings, Inc., acquired from Blue Mountain Resorts Holdings Inc. the 50% interest in Blue Mountain Ski Resort that it did not already own, for CAD $58.0 million.

Takeaway: Closing on the previously announced acquisition.

CCL – P&O Cruises has announced added benefits on selected cruises for summer 2015 on Select Price bookings made before October 31, 2014.

The promotion, which runs in conjunction with the National Cruise Week in the UK, Sept. 27 to Oct. 5, includes sailings on the new Britannia, which launches next spring.  Passengers who book a Select Price on a range of Britannia cruises by October 31, 2014 will receive additional onboard spending money to use against drinks or treats such as a class with James Martin or Marco Pierre White in the new Cookery Club, a luxurious spa treatment in the Oasis Spa or Champagne afternoon tea by master pâtissier Eric Lanlard.

Takeaway: Giving out onboard incentives rather than lowering prices


RCL – On September 15, Royal Caribbean filed trademark applications with the United States Patent and Trademark Office for the following names:

1) Spectrum of the Seas
2) Joy of the Seas
3) Harmony of the Seas
4) Emblem of the Seas
5) Apex of the Seas

Royal Caribbean also added applications for three other cruise ship names it had previously sought to register back on December 29, 2012, including:

1) Pulse of the Seas
2) Passion of the Seas
3) Ovation of the Seas

RCL's next Quantum class cruise ship will be named "Ovation of the Seas"

Takeaway: RCL telegraphing its future growth and potential vessel name


Insider Transactions:

CCL –  MA 1994 B Shares L.P. (Micky Arison's trust) sold 123,337 shares of the company’s stock on Friday, September 19 at an average price of $40.22/share and following the sale, the trust owns 95,736,445 shares of CCL.


MAR –  SVP and Controller Brian G. Macnamara acquired and then sold 8,852 shares of Host Hotels and Resorts via non-qualified stock options (with expiration dates of 12/31/2022 and 02/05/2013) on Wednesday, September 17.  The shares were sold at an average price of $21.99, and Mr. Macnamara now owns 59,475 shares, rights to 22,914 restricted shares and 5,032 NQSOs. 


Macau Visitor Arrivals – during August 2014, visitor arrivals increased 7% to 3.09 million on a year-over-year basis and Mainland China arrivals increased +13% to 2.13 million. Same-day visitors accounted for 54% of the total, at 1.67 million. Mainland visitors traveling under the Individual Visit Scheme rose by 19%, at 1.06 million. The average length of stay of visitors remained unchanged from a year earlier, at 1.0 day in August 2014; overnight and same-day visitors stayed an average of 1.9 days and 0.2 day respectively.

Takeaway: Visitor arrivals increase but gaming GGR falls.  There's a disconnect somewhere...


Union Organizing Officials Arrested (GGRAsia) Macau authorities have accused five members of labor activist group Forefront of the Macao Gaming of aggravated disobedience following a protest on August 25. The five include president Ieong Man Teng, co-founder and secretary general Cloee Chao, vice-president Lei Kuok Keong and two other members of the labour association. Lei Kuok Keong said its members now feel intimidated by the police. He also criticized authorities for contacting their families when collecting information.

Mr Lei admitted that some members may quit the association and that many others may not take part in new protests.

Takeaway: A small victory for the gaming operators, especially SJM, prior to the Golden Week holiday.


Macau Health Bureau Warn Gaming Operators (GGRAsia) Macau’s Health Bureau said it warned one of the city’s six gaming operators about the construction of smoking areas with gaming on its mass floors because the company’s plan did not completely separate the smoking areas from the mass-market gaming areas. Lei Chin Ion, head of Macau’s Health Bureau, reiterated the bureau would “rigorously” inspect the smoking lounges and smoking areas that gaming operators are allowed to set up under the new rules. He also said casinos will have to go 100% smoke-free on their mass floors after October 6 if their smoking lounges have not been inspected and approved by then. The full ban would remain until the smoking lounges are approved and operational, Mr. Lei commented.  The Health Bureau’s Saturday statement added that “it is foreseeable that not all” of the city’s gaming venues will be able to finish the construction of their smoking lounges ahead of the October 6 deadline.

Takeaway:  While we are hearing this could be Sand China, we continue to ponder the possibility the offender is SJM, given the planned worker protests. 


Macau Gaming Operators to Provide Transportation (GGRAsia) The Macau government is negotiating with gaming operators for them to provide transportation for their labor force, including migrant workers and workers on the casinos’ construction sites.  The plan includes shuttling hundreds of workers deployed for the construction of the new casino projects in Cotai. These workers are usually employed by the construction companies, not by the gaming operators.

Takeaway: Higher expenses coming and lower margins.


Macau Chief Executive Formal Appointment (Macau Daily Times) Chui Sai On received the official decree of appointment from the Chinese State Council this morning, in recognition of his upcoming five-year term as the fourth Chief Executive of Macau. Prior to departing Macau for Beijing, Chui Sai On told the media that he has yet to discuss any possible choices for the principal officials of the new government and he would start choosing his new Secretaries immediately after his official appointment. Chui Sai On also indicated he will hold various meetings with senior officials of the central government.

Takeaway: By all indications, the CEO mandated worker reforms at the expense of the gaming industry.


Macau Legislative Agenda (Macau Daily Business) Macau legislators return to the Legislative Assembly in mid-October following a two-month recess. As such, housing will remain one of the hot topics in the legislature. Chief Executive, Fernando Chiu Sai On, considers housing a “top priority” for his new mandate. Political analyst Larry So believes that housing will generate many interventions from legislators. However, Mr. So commented “Even if more houses are made available in those areas, that will surely take at least ten years, so the high demand will remain and we’ll face growing problems from a lack of housing”, So says. A legislative draft on housing leasing has already been announced, and is purportedly currently being worked on by several departments.


Macau-Zhuhai Border Crossing – Macau CEO Chui will discuss with the Chinese central government the possibility of extending the opening hours of the Macau-Zhuhai border crossings. Mr Chui says he is confident that the extension of the opening hours at the border checkpoints could take place soon.

Takeaway:  An extension of hours for checkpoint crossing would be a small positive for the mass segment.

Chinese Gamblers Prefer Bigger Casinos(Gaming Today) A recent survey by the China Outbound Tourism Research Institute, found that Chinese gamblers prefer the casinos in Singapore and Macau, although they do patronize others. Growing in popularity, however, are neighboring regions such as South Korea

Takeaway: Interesting to note, South Korea gets a positive shout out.


Ho Tram Strip Financing Announced – Asian Coast Development, the owner of The Grand Ho Tram Strip, has announced a US$50m funding commitment from its majority shareholder, Harbinger Capital. The Grand Ho Tram Strip opened in 2013 with a 541 room five-star hotel, a championship golf course, and beach front activities. A further 559 rooms and other amenities are to be built in a second phase. NewCity Capital which is a shareholder with Harbinger and Pinnacle Entertainment in Asian Coast Development Ltd made a $20 million investment in the project in July this year.

Takeaway: Harbinger doubling down.


British Tourists Killed in Thailand (AsiaOne) The bodies of two young British tourists, Ms Hannah Witheridge, 23, and Mr David Miller, 24, were found last week with severe head wounds near where they were staying on the southern island of Koh Tao, known for its coral reefs and diving. Thai tourism and police fear the murders will cause many travelers think twice before visiting the country on holiday.

Takeaway: More negative tourism headwinds from Thailand.


Saipan Integrated Resort Details Not Filed – Macau junket investor Imperial Pacific International Holdings Ltd has announced an eighth delay in giving formal details to the Hong Kong Stock Exchange over its major transaction concerning a casino license on the Pacific island of Saipan. The firm has set a new deadline of October 10 for the relevant disclosures, it said in a filing on Friday. It first formally announced its bid for a Saipan license, including the payment of a US$30 million refundable deposit on May 7

Takeaway: We remain skeptical regarding the development of the stipulated integrated resort as the market lacks sufficient airlift to support the required 2,000 hotel rooms.  We outlined these thoughts in our Leisure Letter on March 25, 2014.  


New Jersey Online Poker – New Jersey's fledgling Internet gambling market lost its first provider Friday when Ultimate Gaming accused its partner, the Trump Taj Mahal Casino Resort, of multiple contract breaches and said it is pulling out of New Jersey. Ultimate says it is owed $1.5 million by the casino's parent company and hasn't been paid in more than two months. Ultimate was ranked last out of New Jersey's six Internet gambling operations, taking in $4.9 million from online customers so far this year. The market leader, Borgata and partypoker, have won $30 million online so far this year. Ultimate Gaming was established in 2010 by Frank Fertitta III, Lorenzo Fertitta and Tom Breitling.

Takeaway: Online poker not the elixir of growth as once expected for New Jersey.


Antigua Integrated Resort – Following on the September 11, 2014 announcement by Antigua and Barbuda to seek a gaming dispute resolution with the United States, YIDA International Investment Antigua Limited acquired a land portfolio comprised of approximately 987 acres on the mainland, plus three adjacent islands for a combined total of approximately 1,522 acres.The Chinese firm plans to create “Singulari,” a multi-billion dollar mixed-use project including a golf resort, several five-star hotels, a horse track and residences stretching from the Crump Peninsula to Guiana Island.

Takeaway: Interesting timing of both announcements. The proliferation of gaming continues to be in much smaller and more remote regions.


Hoteliers to Reduce Discounting (Hotel Online) Hotels in major North American markets are continuing to experience solid growth in both rate and occupancy across all travel segments, according to data from the September 2014 TravelClick North American Hospitality Review (NAHR). This sustained growth is enabling hoteliers to reduce transient discounting, paving the way for even stronger revenue per available room (RevPAR). For the next 12 months (September 2014 - August 2015), overall committed occupancy (transient rooms reserved plus group rooms committed divided by capacity) is up 4.4% when compared to the same time last year. ADR is up 4.1% based on reservations currently on the books.

Takeaway: A positive trend for lodging, higher ADR and higher RevPAR results.


Guests Pay More for Hotels with Better Reviews (Hotel Online) Travelers are 3.9 times more likely to choose a hotel with higher review scores when the prices are the same. When hotel prices are increased for hotels with better review scores, travelers are more likely to book the hotel with the higher score even when it costs more. 76% of travelers were willing to pay more for a hotel with higher review scores, when asked explicitly.

Takeaway: Of course, guests prefer rooms with better reviews and ratings.


Ebola Impacts Safari Tourism – According, the company surveyed 500 safari tour operators, half of which reported that bookings are down between 20% and 70% due to the Ebola outbreak in West Africa, which is more than 2,000 miles from safari destinations.

Takeaway: With African tourism suffering, the global tourism spend will go elsewhere - the southern Mediterranean could be a likely beneficiary.


New Avian Flu Outbreak (UN News Center) The United Nations Food and Agriculture Organization (FAO) today warned that a recently-emerged strain of avian influenza virus detected in poultry in Southeast Asia presents a new threat to animal health and livelihoods and must be closely monitored. The virus known as H5N6 has so far been detected in poultry in China, the Lao People’s Democratic Republic and Viet Nam.  The H5N6 bird flu is highly contagious in chickens, geese, and other poultry, which hundreds of millions of people rely on for their livelihood. FAO’s Chief Veterinary Officer, Juan Lubroth, said “H5N6 is particularly worrisome, since it has been detected in several places so far from one another, and because it is so highly pathogenic, meaning infected poultry quickly become sick and, within 72 hours, death rates are very high.”

Takeaway: A story which we will closely monitor.


China Macro – September HSBC flash manufacturing PMI 50.5 vs Reuters 50.0 and 50.2 in August


Singapore Inflation – Compared with Aug 2013, the CPI in Aug 2014 increased 0.9% with lower cost of transport partially offset by higher costs of food, education & stationery and healthcare. The CPI in Aug 2014 rose 0.5% over Jul 2014.


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.


Takeaway: No change to our mid teens decline projection for September

Slightly better weekly results but still down YoY



Through September 21st, table revenues were HK$15.99 billion.  Average daily table revenues (ADTR) for the week (Sept 15-21) was HK$794 million, -9% YoY when compared with last year’s ADTR of HK$874 million for the period Sept 16-30, 2013.  For the full month of September, we continue to expect gross gaming revenues (GGR – includes slots) to fall 13-17% from last year which would represent the largest YoY decline since June 2009.


We’re hearing that the normalization of Mass hold the past week may have led ADTR +7% week-over-week.  Sands China may have held very low in the Mass segment in the 1st half of September (single digits) but has since normalized.  There is a little bit of urgency in Macau as various management teams are discussing new mass marketing strategies including 1) moving more VIP tables to mass; 2) increasing reinvestment rates on loyalty club promotions by lowering entry points on packages.


Market VIP win % appears fairly normal but volumes remain weak but steady.  




In terms of market share, Galaxy continues to lead the way, with MGM and MPEL also producing above trend.  LVS, SJM, and WYNN‘s share remain below trend.


We think Galaxy is holding well in VIP, while SJM may be holding low.  


Many eyes are rightly focused on the upcoming smoking ban.  We believe Sands China could be the culprit behind yesterday’s warning by the Macau Health Bureau of an operator who did not completely separate the smoking areas from the mass market gaming areas.



Retail Callouts (9/23): ICSC Sales, UA, TGT, SHLD, WMT

Takeaway: ICSC remains strong, but trendline reading (2-yr) decelerates for the third consecutive week. Head scratcher marketing campaign from UA.



Tuesday (9/23)

BBBY - Earnings Call: 5:00pm


Thursday (9/25)

NKE - Earnings Call: 5:00pm


Friday (9/26)

FINL - Earnings Call: 8:30:am




Takeaway: This week's ICSC reading was a double edged sword. On one hand, we saw 4.1% growth, which is in-line with the stratospheric readings we've grown accustomed to since July. But on the flip side, the 2-year run rate, which we think is a much better gauge of the health of the retail space, decelerated for the third consecutive week. One datapoint rarely means much to us. Two makes us raise an eyebrow. Three has our full attention.


Retail Callouts (9/23): ICSC Sales, UA, TGT, SHLD, WMT - 9 23 chart2


Retail Callouts (9/23): ICSC Sales, UA, TGT, SHLD, WMT - 9 23 chart3





UA - Product Spotlight

Maybe 'Performance Chinos' will end up being a great category for UA. Truth be told, the company has earned the benefit of the doubt based on its solid execution across almost all new product launches over the past year.  All that said, this category and product launch is a head-scratcher from where we sit.  You can take a basketball asset like Jennings off-court and put him in Chinos and call them 'performance'. But let's be real, the guy is pictured in a bar playing pool. That's fashion, not performance. We have no clue as to the customer that UA is targeting with this ad. As good of a player as Jennings is, he's not justifying his pay package with basketball shoe sales. UA has to try to make their money back somewhere.


Retail Callouts (9/23): ICSC Sales, UA, TGT, SHLD, WMT - 9 23 chart4





TGT - Target Faces Unique Challenges in Quebec



  • "Findings from a survey of 1,000 Canadian women by Headspace Marketing indicate that Quebeckers were significantly less familiar with Target than Canadians in the rest of Canada when it launched last year. Today, only a quarter (23.7%) of Quebec women have ever shopped at a Target store in the U.S. compared to more than half (54.4%) in the rest of Canada (and as high as 77% in Manitoba and 62% in B.C.)."


SHLD, TGT - Sears Canada auction flop darkens outlook



  • "Billionaire Eddie Lampert’s bid to sell Sears Canada looks like a bust — and that’s bad news for Sears at home."
  • "An auction of a majority stake in the Canadian retailer failed to attract any acceptable bids in its latest round, eliminating a potential near-term cash infusion for Sears Holdings that could have exceeded $750 million, The Post has learned."


KER - Kering Taps Carlo Imò



  • "Carlo Imò has been named head of Kering Asia-Pacific, effective Dec. 1. "
  • "Currently Kering’s vice president of human resources in Asia-Pacific, he is to oversee the international expansion of the French group’s brands in the region, which include Gucci, Bottega Veneta and Yves Saint Laurent. He reports to Jean-François Palus, group managing director."


WMT - Wal-Mart's Unusual Rewards for Employees Who Give to Its PAC



  • "Liberal groups and a union-backed Walmart worker group are asking the Federal Election Commission to investigate Wal-Mart Stores’ policy of rewarding contributions to its political action committee with donations to charity. Under the policy, every $1 an employee donates to Wal-Mart’s PAC, which supports such probusiness candidates as Ohio Republican House Speaker John Boehner, Texas Republican Senator Ted Cruz, and Arkansas Democratic Senator Mark Pryor, triggers a $2 donation to a charity for Wal-Mart employees in need."





  • "Tiffany & Co. announced the pricing of $250,000,000 aggregate principal amount of its Senior Notes due 2024  and $300,000,000 aggregate principal amount of its Senior Notes due 2044. The initial purchasers of the notes are Merrill Lynch, Pierce, Fenner & Smith Incorporated, Goldman, Sachs & Co., BNY Mellon Capital Markets, LLC, J.P. Morgan and Mizuho Securities. The coupon on the 2024 notes will be 3.800% per year from the date of issuance, payable semi-annually in arrears. The coupon on the 2044 notes will be 4.900% per year from the date of issuance, payable semi-annually in arrears."


Jimmy Choo Sets IPO Plan



  • "Jimmy Choo is pursuing an initial public offering on the London Stock Exchange next month, with the intention to float at least 25 percent of its equity, valuing the company at more than 700 million pounds, or $1.14 billion."


Tesco CFO Stewart Starts Early as Accounting Inquest Begins



  • "Tesco Plc said Alan Stewart will start today as chief financial officer after gaining his early release from Marks & Spencer Group Plc as the biggest U.K. grocer handles the fallout from overstating its profit guidance."


RSH - RadioShack in Talks With Supplier to Ease Restructuring



  • "RadioShack Corp., the electronics retailer trying to avoid bankruptcy, said it’s holding talks with a 'major vendor' that could help the company restructure its finances."
  • "The negotiations involve some of RadioShack’s largest creditors, the Fort Worth, Texas-based company said today in a regulatory filing. While no agreement has been reached, the talks are continuing, the retailer said."


UPS - UPS Store expands 3D printing to 100 additional locations



  • "Following the successful launch of 3D print in six markets across the country, The UPS Store announced it is is expanding 3D printing services to meet the growing demands of its small business customers to nearly 100 additional locations nationwide."


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Russell Crushed With Liquidity a Concern

Client Talking Points


Russell 2000 has been absolutely crushed in the  two days since BABA’s birth = down another -1.7% yesterday (-3% in two days, biggest 2-day drop of the year) as small cap liquidity remains one of our biggest concerns (42% of stocks in the Russell are crashing, -20% of more from their 12 month peaks).



Bounce to lower-highs is met, once again, with bond buying on the long end of the curve (TLT +13.1% YTD vs. RUT -3%); UST 10YR Yield falls to 2.54% with immediate-term supports at 2.42%, then 2.32%. Federal Reserve Bank of New York President William C. Dudley was decidedly dovish at Bloomberg’s central planning event yesterday, talking down both rates and the U.S. Dollar.


Gold stopped going down when bond yields stopped bouncing to lower-highs. Gold also held where it started the year, at +0.8% this morning to +1.9% year-to-date as bombs fly in the Middle East. Immediate-term risk range = $1211-1256 after the net long position (CFTC futures/options) has been cut in half in the last month.

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


FSTE 100 down -1%, breaking @Hedgeye TREND support again



You must not fight too often with one enemy, or you will teach him all your art of war.

-Napoleon Bonaparte


iOS 8 had already been installed on some 46% of active iPhones and iPads by Sunday. The 10-month-old Android KitKat is still working its way toward the 25% mark.


Takeaway: We’re Adding KSS to our Best Ideas list as a short. We’ll be hosting a call Wed. 9/24 at 11am ET to review our thesis. Call details below.

We’re adding Kohl's Corp. (KSS) to our Best Idea list as a short. We'll be hosting a call on Wednesday, September 24th at 11:00am EDT to review our thesis in depth (including some preliminary results of the department store consumer survey that we just completed).   


We have not liked this name for a while, but we're adding to our Best idea list because we think the recent 180 degree turn in sentiment and subsequent strength in the stock is simply unwarranted. Are estimates in check for the next two quarters? Probably. But the big issues are a) substantial risk to the model in 2015, and b) the duration of a 'new normal' for KSS at a lower EPS level.


Specifically, while the Street is looking for 10% earnings growth next year, we're modeling a -10% decline in earnings for the year. We think that 2014 will mark the last time for at least 4-5 years  -- barring a parabolic acceleration in the U.S. economy -- that KSS will earn anything starting with a $4. That's not good when the Street is over $5 two years out. Its operational misses should crimp its ability to buy back stock and financially engineer the P&L.


We'll have a very detailed slide deck analyzing key levers of the P&L and balance sheet, and will also delve into key e-commerce and real estate considerations.


Call Details

Toll Free Number:

Direct Dial Number:

Conference Code: 765136#

Materials: CLICK HERE

Crossing The Bubble

This note was originally published at 8am on September 09, 2014 for Hedgeye subscribers.

“First there is a mountain – then there is no mountain. Then there is.”

-Zen Proverb


Replace the word #bubble for mountain and you’ll be right where I think the US stock market is right about now. While April-May of 2014 (when social-cloud-bubble stocks were imploding) may seem so 4-5 months ago, if you want to review the risks, there they were.


The aforementioned quote comes from the beginning of chapter 2 in a Tech #bubble book I’ve been re-reading for the last week, Crossing The Chasm, by Geoffrey Moore. The chapter is called High Tech Marketing Enlightenment.


Originally written in 1991 and re-published in 1999, it was one of the first books that the Quatrone boys in the bubble department at CS First Boston told me that I had to read. So I did. And within 6 months, the entire thing went poof…

Crossing The Bubble - Hindenburg


Back to the Global Macro Grind


What we called the internet back then is now called the “cloud.” And my former employer (CS First Boston) is now called Credit Suisse. Their new head of investment banking ran the Alibaba #bubble road-show at the Waldorf yesterday. If you were there, congratulations – you were crossing the 3rd US stock market bubble I have seen in my career.




On our research desk yesterday I was using the term freely. Not having any conflicts of interest (banking, brokerage, advertising, etc. fees), it was kind of fun – you know, being honest and stuff…


“But Keith, Alibaba is a big company that makes money.”


At 27-30x revenues, imagine they didn’t? (Amazon came public at 10x revs in 1997)


BREAKING: Facebook’s Value Tops $200B –Bloomberg


Oh and today Apple (AAPL) is going to host an Obama-like rock star concert (U2, who I love, will be there!) today at the Flint Center (where Steve Jobs introduced the Macintosh in 1984) with larger screens, wearables, and stuff… #cool.


That stock is “cheap” though. Its market cap is only $600B. That’s with a B, as in bubble or beelion dollars, bros.


Since we’re throwing around billions in one hundred dollar clips right now, why shouldn’t Alibaba be worth $200B? Exxon (XOM) is only worth $400B (and they make money too!).


*PS. If you think I am nuts. Please re-read this 1 year from today.


In yesterday’s Early Look, for some reason this sentence got a lot of attention/feedback: “I haven’t been this bearish since the fall of 2007.” So I’ll reiterate that this morning with one caveat – I haven’t been this bearish on US stocks since yesterday.


In other news, the #bubble formerly known as Bitcoin dropped to $469 today.


And everyone and their brother seems to think that bonds are finally going to prove them right (going down). So I’ll reiterate the bullish on US #Q3Slowing call (bullish on the Long Bond, in TLT, EDV, and BND terms) too this morning.


Since no one on consensus TV will be watching anything but AAPL today, here are some Bond Market levels to monitor:


  1. Immediate-term TRADE risk range of the 10yr UST Yield has widened to 2.31%-2.51% (widening ranges are bearish)
  2. Intermediate-term TREND resistance line for the 10yr Yield = 2.81%
  3. Immediate-term TRADE risk range for the 30yr UST Yield has widened to 3.03-3.29%
  4. Intermediate-term TREND resistance for the 30yr Yield = 3.46%


That’s why I am taking our allocation to Fixed Income (Hedgeye Asset Allocation Model) to 91% of its max this morning. My “max” allocation to any asset class is one-third of total assets.


If I was running my hedge fund, what the 0% US Equity allocation implies is a net neutral (fully hedged on a beta-adjusted basis) book. And my net long position to International Equities would be 16% (and rising) on pullbacks to the low-end of my risk range.


If you’re at CS telling people it’s different this time – best of luck. Crossing the bubble is a big business, so make sure to get either a big allocation or commission! Forget 2007, the drawdown risk in billions of #bubble market cap terms is more epic than it was in 2000.


My immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 2.31-2.51%

SPX 1982-2007

RUT 1154-1179

VIX 11.34-13.56

EUR/USD 1.28-1.30

Pound 1.61-1.64

Gold 1251-1286


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Crossing The Bubble - Chart of the Day

Attention Students...

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