LEISURE LETTER (09/25/2014)



  • Sept 25:  Nevada August revenues
  • Sept 29 - Oct 2: G2E Las Vegas
  • Tuesday: Sept 30
    • JPM Securities: FCH, AHT
    • DB Leveraged Finance: WYNN, MGM, CHH, FCH, RHP
    • TAG Fall Consumer Conf: LVS, WYN, MTN
  • Wednesday: Oct 1
    • DB Leveraged Finance: PENN, BYD, SGMS
    • TAG Fall Consumer Conf: LVS, WYN


IGT – announced an agreement to provide state-of-the-industry systems solutions encompassing IGT Advantage systems, sbX Floor Manager and Service Window, that will provide a comprehensive patron interaction and floor optimization suite of solutions and applications to City of Dreams Manila

Takeaway:  Good to see IGT gaining traction in Asia. 


MPEL – announced an a salary increase for its co-chairman, chief executive and executive director, Lawrence Ho Yau Lung, to US$2.5 million from US$2 million.

Takeaway: A challenging time to justify higher executive compensation, when revenues and earnings are revising lower. 


WYNN (Macau Daily Times) Despite comments from Chairman Steve Wynn indicating he believed the Wynn Cotai land purchase investigation was complete, the Commission Against Corruption (CCAC) issued a statement to the contrary saying "The relevant investigation is still underway. To observe the principle of judicial confidentiality, the CCAC will neither make any comments nor provide any supplementary information on the case.”

Takeaway: As we indicated yesterday, nothing in Macau is ever concluded until the appropriate governing agency indicates matters are concluded.


IHG:LN – announced the signing of a new 900-room InterContinental Hotels & Resorts property in downtown Los Angeles that will be the largest InterContinetnal hotel in the Americas region. The hotel, which is scheduled to open in 2017, will be part of Korean Air and Hanjin Group’s 73-story, US$1.1 billion-plus new-build Wilshire Grand project. Offices and retail space will occupy the building’s lower floors while guestrooms will be on floors 31 through 69 with a sky-lobby on the 70th floor and an F&B outlet on one of the top floors.

Takeaway: Development of Luxury and Upper-Upscale lodging in central business districts is finally restarting.


TVPT – raised $480 million, the high end of its forecasted range, in its initial public offering when the company priced 30 million shares at $16 a share as compared to a filing range of $14 and $16. Underwriters have the option to buy another 4.5 million shares. With 25% of the company being sold, the public offering values Travelport at $1.92 billion.

Takeaway: Another on-line travel, global distribution system goes public.


Revel Auction Update ( The auction of Atlantic City's shuttered Revel Casinos Hotel never got started Wednesday in New York before it was adjourned until Tuesday, an attorney for Florida bidder Glenn Straub said. "They spent six hours privately negotiating with whoever the bidder is that they want to be the winning bid," Stuart J. Moskovitz, the attorney for Straub, said of Revel's legal team. "They wouldn't even tell anybody who it was, and because the negotiations apparently weren't sufficiently fruitful, they ended at 3 p.m.," he said.

Takeaway: New Jersey - where everything happens behind closed doors.


Saipain Casino Development (GGRAsia) Macau junket investor Imperial Pacific International Holdings Ltd said via filing with the Hong Kong Stock Exchange that the total development cost for a casino project on the Pacific island of Saipan is estimated at US$7.1 billion. The company announced a more than twofold increase in investment for the project and said it plans to build and operate “a town hotel and an integrated resort with gaming facilities in five phases”. The full plan includes 1,600 gaming tables and 3,500 slot machines, as well as 4,250 rooms and 300 villas. The company said it plans to finance the development costs by equity and/or debt financings, however it “has not yet formulated any concrete fund raising plan”.

Takeaway: That's more than 1.66 million annual room nights as compared to current annual inbound visitation of a mere 400,000. Visitors origins include: Japan 30%, Korea 35% and China 25%.


Delta Bridge Update (Macau Daily TImes) The Transportation Infrastructure Office (GIT) revealed the design of the new Hong Kong-Zhuhai-Macau Bridge (Delta Bridge) and confirmed the project is slated for completion by the end of 2016. GIT officials revealed that they plan to start building the customs area on the Macau side early next year.  Engineer Lam Wai Hou from GIT said that the passenger capacity of the Zhuhai-Macau checkpoint will be 150,000 per day while that of the Hong Kong-Macau checkpoint will be 100,000 per day. The port of entry will have 18 lanes for vehicles to both arrive and depart Macau respectively.

Takeaway: The opening of the Delta Bridge is widely expected to be a catalysts for stronger revenue results from the mass gaming segment.


Warhol Paintings To Be Auctioned – German casino company WestSpiel will sell two Andy Warhol paintings at a Christie's auction in November. The two paintings include "Triple Elvis (Ferus Type)” and “Four Marlons” which rate among Warhol’s most famous portraits. The monumental paintings, each nearly 2.1 meters high, have never appeared at auction before and could bring a combined total of $130 million when they go up for bid on Nov. 12

Takeaway: Might Mr. Wynn be a bidder?


Los Cabos International Airport – heavily damaged by Hurricane Odile on Sept. 14, is expected to be open for commercial operations by Nov. 25, according to airport operator Grupo Aerportario Pacifico.  Some commercial operations could begin on a limited basis by Oct. 9, although that date is subject to the pace of repair work, which includes the three terminal buildings, control tower and equipment and debris removal.  The facility will continue to operate only relief and humanitarian flights through Oct. 8.

Takeaway: A near term headwind for the lodging companies but could prove to be a catalysts for other Mexico beach destinations such as Puerto Vallarta.


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

CLICK HERE to view the document.


Best of luck out there,


Darius Dale

Associate: Macro Team

Boom-Bust Cycle

This note was originally published at 8am on September 11, 2014 for Hedgeye subscribers.

“The Panic of 1819 was the first boom-bust cycle of the economy caused by government monetary policy.”

-Thomas Dilorenzo


It was an inevitable consequence of the Hamiltonian system of government debt accumulation combined with a government-run bank that prints money in order to fund the debt.” (Hamilton’s Curse, pg 68)


Sound familiar? It shouldn’t. Unless you’ve studied economic history, you might actually think that all of this won’t end in panic. Unless it’s different this time, it always has. Give it some time.


While a sub 2% US GDP growth economy could hardly be described as a “boom”, we have had some booming bubbles develop within the Fed’s 0% experiment. From real estate, to MLP #YieldChasing, to the latest Silicon Valley bubble, I think we’ll all look back and call it epic.


Boom-Bust Cycle - 45


Back to the Global Macro Grind


Forget about the bubble talk for a second, rewind the tapes (or just watch it trade in real-time today) and watch Apple’s (AAPL) volume and intraday price moves. That’s no bubble – that is a mania.


Manias are much more fun to watch than bubbles – people do the craziest things. Watch Go Bro (GPRO) trade, or watch the new squeeze quant algos jam these no-borrow-high-short-interest stocks. It’s pure, unadulterated, price momentum chasing.


While mo mo manias are entertaining, the bubble in momentum chasing US equity market cap is downright frightening. Pop Quiz: if you add up Apple, Facebook, and Alibaba’s proposed market caps, what do you get?


A: $1 TRILLION Dollars


Yeah, that’s normal. And so is paying $350 for an iUgly watch and, at the same time, telling the world there is no inflation “because there’s deflation in technology” (in other news, fully loaded with Oil’s recent decline, USA’s cost of living just hit another all-time high).


If you add Google, the Top 4 in the Silicon Valley bubble get you to $1.25 TRILLION. To be fair, BABA is not really a “valley” name – the “smart money” in there didn’t want to give Alibaba $20 million. It wasn’t a “good idea” back then. So they’ll give them $25 Billion now instead!


And if you back out Exxon (just to make my storyline better), here’s what you can get for $1.25 TRILLION:


  1. Berkshire Hathaway = $235B
  2. Wal Mart = $230B
  3. GE = $230B
  4. Chevron = $225B
  5. Johnson & Johnson = $210B
  6. Citigroup = $125B


Remember that while I am sure I am wrong on my $29.99 watch from WalMart not being as cool as the iWatch, Apple (AAPL) has $600 billion reasons (market cap) why that fashion statement has been discounted by the market, just a bit.


Now, to be fair (again, I am a fair guy!) for those of you who know everything about Apple (AAPL), you’ll recall that there is a precedent for this stock blowing up (split adjusted, it went from where it is today to $55 in less than a year). Never mind what the US stock market bubble would do if AAPL dropped 50% from here (still trading at a $50B premium to my preferred iBear watch outlet, WMT), what if it dropped 5, 10, or (deep breaths) 25%?


Just asking.


I know. Every boom-bust bubble call needs a catalyst. Here’s mine – US #GrowthSlowing.


Oui. C’est tout, mes amis. En Francais, that means that is it.


That’s all I think I need to get right from here in order to get both bonds (long the Long Bond and anything equities, like XLU, that looks like a bond) and the stock market bubble right. I think I need to get the rate of change in US growth right.


While I don’t think AAPL will get cut in half from here, US GDP growth could, easily, from this headfake Q2 bounce of 4%. More importantly, US GDP growth could be half of consensus expectations (Old Wall consensus = 3% GDP growth and +3.3% 10yr yield), for Q3 and Q4.


And that’s our bullish scenario. The bearish one, of course, is that 1/3 of America (you and I) figures out that 2/3 of Americans are already in another early cycle recession. After 63 consecutive months of US economic expansion, that’s what booming bubbles within the cycle eventually do – they bust.


Our immediate-term Global Macro Risk Ranges are now (I update my Top 12 Macro Ranges in our Daily Trading Range product, with intermediate-term TREND views, daily, as well):


UST 10yr Yield 2.31-2.53%

SPX 1983-1999

RUT 1154-1169

VIX 11.34-13.56

Pound 1.60-1.63

Gold 1241-1281


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Boom-Bust Cycle - Chart of the Day

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Dollar, Nikkei and Gold

Client Talking Points


The USD is signaling immediate-term TRADE overbought vs. both the Euro and Yen this morning, so watch-out if this starts to reverse (this is where the USD Index topped in 2013 as well). Inverse correlations between the USD and big stuff like Oil and Gold are running -0.8-0.9 on 60-90 day correlation durations.


One of the biggest benefactors of Draghi going for the devaluation drugs in May has been Japanese stocks – they love the smell of Burning Yen. The Nikkei’s round trip recovery came on worsening economic data, but it is +17% since May 19th as the Dollar Yen trade got torched.


2014 round-trip for both the CRB Index and Gold on this massive FX move (biggest since 1997, which by the way isn’t a riskless reference point in macro history), and Gold’s exhaustion level on the downside is 1203-1211 inasmuch as the USD Index is exhausted on the upside in the 84.92-85.67 range.

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


FX: Draghi continues to burn the Euro, down to $1.27 vs USD, signaling immediate-term TRADE oversold



Stop walking through the motions of a conditioned routine and start consciously taking action on your visualized intent.

-Steve Maraboli


As part of its holiday strategy, Toys"R"Us plans to hire 45,000 seasonal employees at its stores and distribution centers nationwide, more than doubling the company's workforce.

CHART OF THE DAY: An Effective -3% Fed Funds Rate For An Economy That's Allegedly "Humming Along"?


CHART OF THE DAY: An Effective -3% Fed Funds Rate For An Economy That's Allegedly "Humming Along"? - Chart of the Day

Yo, FX Go!

“Listen: there’s a hell of a good universe next door; let’s go.”

-E.E. Cummings


With a body of work that included almost 3,000 poems, E.E. Cummings was one of the most prolific poets in America’s 20th century. If he was around today, he’d probably tell you the aforementioned quote was about centrally planned economies.


You got it, yo. It’s all about jamming our noses into 18th century export-models and burning the purchasing power of The People at the stake. Rip some lip. You know, bro – get those asset prices hooked and up and out of the water!


This is Master of The Universe type stuff. Janet, Mario, Haruhiko - God put you on earth to do this, yo. Let’s go!


Yo, FX Go! - 3gp


Back to the Global Macro Grind


As you can see, when left to my own 45 minutes of creative writing devices in the early morning, I get flashback moments to what my first English professor @Yale deemed “un-grade-able” work …


Getting back to where I have some competence - central questions about centrally planned currencies:


  1. Did the devalued currency model work for the Argentines or Japanese?
  2. What happens when all 3 of the major players in the FX War (Japan, Europe, USA) are at 0%?
  3. Coming off the all-time lows in FX, Fixed Income, Commodity, and Equity volatility, what could go wrong?




  1. No
  2. They’ll tell you that 0 minus 0 is actually greater than 0
  3. Everything


No way. Everything?


Uh, yeah, yo. Let’s go there:


  1. When USD goes up or down, a lot, the machines chase this thing called the Correlation Trade
  2. In 2011, with Buck Burning to all-time lows, the Correlation Trade = Long Commodities, Gold, FX, etc.
  3. In 2014, with Euro and Yens Burning, the Correlation Trade = Short Commodities, Long Nikkei, etc.


Causality or correlation? Please. The causal factor that drives all of this are market expectations that central planners only do one thing when the economic data (always) misses their growth forecasts – they get easier…


Easier, as in dovish = devaluing…


At the first sniff of #EuropeSlowing (in May) Mario’s Italian and French bureaucrat buddies immediately focused on devaluing ze Euros. That gave the USD a surrender bid. Then, as the Abenomics experiment started to fail, the market started speculating that there were another 3-legs to the 3-legged Japanese devaluation stool.


That’s right – 0 minus 0 = moarrr than 0. And 3-legged central planning stools really have 6, or 10 legs. This is so ridiculous at this point that my jokes aren’t funny.


Moving along. If you are into the monthly performance chasing thing, here is the wood (6-week USD correlations):


  1. USD’s 6 week inverse correlation to Gold -0.95
  2. USD’s 6 week inverse correlation to Commodities (CRB Index) -0.93
  3. USD’s 6 week inverse correlation to Brent Crude Oil -0.92
  4. USD’s 6 week positive correlation to Japanese Stocks +0.89
  5. USD’s 6 week positive correlation to Swiss stocks +0.83
  6. USD’s 6 week positive correlation to Austrian stocks +0.82


In other words, as it became glaringly obvious that both Japan and Europe’s economies were slowing, you either bought the living daylights out of the Mother’s Index in Japan or something in Austria, and you crushed it.


“#Boom, crush. Night, losers. Winning. Duh!”

-Charlie Sheen


Oh, and what happens if and when my rates call plays out “fundamentally” – i.e. US #GrowthSlowing here in Q3 (then Q4) takes hold… the Fed freaks, and starts to devalue the Dollar again?


Bingo. This entire bongo board of Correlation Risk turns upside down and you do the opposite, fast.


As a result, volatility (across asset classes) is already signaling to me that we could very well see the mother of all historical volatility breakouts in FX, Commodities, and Equities. But no worries. For now, the central planners call this “price stability”, yo.


Out immediate-term Global Macro Risk Ranges are now:



RUT 1115-1144

VIX 12.91-14.98

USD 84.61-85.33

EUR/USD 1.27-1.30

WTI Oil 90.42-93.95

Gold 1


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Yo, FX Go! - Chart of the Day

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