Daily Trading Ranges, Refreshed [Unlocked]

This is a complimentary look at today's Daily Trading Ranges our proprietary buy and sell levels on major markets, commodities and currencies from Hedgeye CEO Keith McCullough. It was published September 30, 2014 at 07:44 in Daily Trading Ranges. Click here for more information and to subscribe.

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LEISURE LETTER (09/30/2014)

Tickers: MGM, LVS, HLT, RHP


  • 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
    • National Day of the People's Republic of China
    • DB Leveraged Finance: PENN, BYD, SGMS
    • TAG Fall Consumer Conf: LVS, WYN


MGM (Bloomberg) according to MGM Resorts chief financial officer Dan D’Arrigo, the US$1.45 billion worth of 4.25% bonds, issued in 2010 and maturing in April 2015, will be converted into company stock at a price of US$18.58 a share. Mr D’Arrigo said the conversion would reduce MGM Resorts debt to about US$11 billion and cut annual interest costs by US$60 million.

Takeaway: MGM senior management still managing the balance sheet for debtholders.


LVS & 1928:HK – Conrad Macao, Cotai Central located at Sands Cotai Central was recently awarded ‘Top 25 Conference Hotel in Asia’ by online travel magazine’s annual ‘Best in Travel’ Poll 2014. This year’s Poll saw Conrad Macao’s ranking gain three points to come in at number 21 on the list (from number 25 in 2013).

Takeaway: A positive award for LVS and SCL and it's MICE focused programming.


HLT – in a preview of its Q3 2014 earnings update, Hilton Worldwide in an update to its Hilton HHonors members noted the opening of 62 new hotels from June 30 to September 16, 2014 including 47 hotels in the U.S., five hotels in Canada, two hotels in China, England, and Russia and one in Japan, Malaysia, Panama, Tanzania, and Turkey.

Takeaway: A strong Q3 new openings sum, higher than Q3 2013's 40 openings and slightly below our forecast of 65 hotels.  Given the timing, two additional weeks in the quarter, we  believe HLT could surpass our forecast of 65 hotel openings for the full Q3 2014.


RHP – the convertible notes will mature tomorrow, October 1.  We expect the company to issue a press release/8K related to the maturity.  We forecast the company using proceeds from its corporate credit facility to retired the approximately $230 million of outstanding debt.

Takeaway: We view the maturity as a positive turning point as the maturity will reduce the fully diluted shares and result in positive earnings revisions.


EBAY – announced that it would spin off its PayPal payments unit into a separate publicly traded company.

Takeaway: Interesting to us, we ponder whether the new PayPal would consider securing gaming and regulatory approvals to allow the company to participate in online gaming/betting industry.


Macau Illegal Worker Crackdown (Macau Daily Times) The Public Security Police Force (CPSP) has found 19 illegal workers after conducting inspections at over 400 sites. The Labor Affairs Bureau, which conducted similar inspection procedures in six of the locations, uncovered two people working illegally within the area. In a statement, authorities said that a joint operation also took place in two other locations, but no illegal workers were found. Inspections took place mainly in construction sites and residences, as well as commercial and industrial buildings.

Takeaway: Seemingly a headline to appease the labor unions.


Occupy Central (Hong Kong) (Bloomberg) Protesters continued to block roads in central Hong Kong in the fifth day of pro-democracy demonstrations as leaders warned the standoff would escalate in the coming days if their demands aren’t met. Crowds swelled to the tens of thousands last night as police largely kept their distance.  By morning, enough people remained in the Admiralty district for key roads to stay blocked as workers commuted by foot and metro. Student leaders last night said the protests would spread if their demands aren’t met for Chief Executive Leung Chun-ying to resign and for the government in Beijing to drop plans to control the 2017 leadership election.

Takeaway: Twenty-five years later, we have Tiananmen Square Redux this time in Hong Kong.


Macau Government to Share Financial Information (Macau Business)

The Macau government says it will soon amend the law to make it easier to share information about taxpayers with other governments. The amendments will allow the government to adopt the common reporting standard advocated by the Organization for Economic Cooperation and Development. The common reporting standard requires governments to exchange automatically information about accounts held in financial institutions under their jurisdiction, instead of exchanging information only when asked to.

Takeaway: A headwind for GGR growth - especially VIP and premium mass segments.


Resorts World Bayshore (Manila) – owner and operator of upcoming casino property Bayshore City Resorts World at Manila’s Entertainment City, has formalized a partnership with Japanese hotel brand Okura Hotels and Resorts. The Bayshore City Resorts World Okura Hotel is expected to include approximately 380 guest rooms. 

Takeaway: The programming of the Resorts World Bayshore continues with this luxury hotel offering.

U.S. Cruise Passenger Growth Slowing (Travel Weekly) Data from the 2014 Economic Impact study recently released by CLIA show that U.S. cruise passenger growth has declined in each of the past four years.  While the absolute number of U.S. passengers has grown since 2010, from 10.1 million to 10.7 million last year, the relative share sourced from the U.S. has dropped from 68% to 61%. 

Takeaway: Maybe the new ship development and deployments will spur U .S. passenger growth.


China Macro - HSBC manufacturing PMI September reading was 50.2 which was lower than the flash reading of 50.5.


Chinese First Time Home Buyers - the PBoC said it will relax rules for first time property buyers, as well as relax credit controls for second home buyers and support property developers to sell mortgage-backed securities in an effort to support reasonable home loan demand.


Guangdong Capital Plans - (China Securities Journal) The southern province of Guangdong plans to seek more than CNY77 billion of private capital to invest in state-owned enterprises in 17 industries


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: Q3 earnings look good and we see a solid start to Q4 for the regional gaming operators – PENN/BYD.

Entering a “less bad” era?


Regional gaming stocks look poised to bounce higher heading in and through Q3 earnings.  Regional trends were better than the math predicted and certainly better than Street expectations for August.  Anecdotal sources and the math suggest September and October will be more of the same which could lead to Q3 earnings beats and positive conference call commentary regarding the start to Q4. Of note, Q4 2014 and Q1 2015 are very easy comps due to last winter's polar vortex and a potential El Nino this winter.  With little REIT conversion frothiness (PNK), we believe PENN and BYD are the best ways to play the short term regional resurgence.


Owing to conservative guidance (finally), easy comparisons, and slightly improving fundamentals, we think PENN and BYD should beat Street Q3 EBITDA and EPS expectations:




As can be seen in the following chart, the 2nd derivative of regional gaming growth has been positive since December 2013.  Moreover, August demand was better than we expected and, optically, September and October should look even better.  Certainly, much of the “strength” is due to easy comparisons and monthly volatility and we still harbor long-term demographic concerns.  However, company guidance was conservative for Q3 as are Street estimates.  Thus, Q3 earnings look very beatable and while forward guidance may remain conservative, the tone should be more positive. 


State gaming figures will be released starting next week and we expect August’s momentum to continue.  Analysts will likely begin raising Q3 estimates which should lead to higher stock prices for PENN and BYD.  PNK also could benefit but that stock seems event driven at this point as investors await the REIT spin decision.  PENN/BYD momentum could carry through the earnings calls and into November when the States release October figures.  Finally, stay tuned as Q4 2014 and Q1 2015 are very easy comps due to last winter's polar vortex and a potential El Nino this winter.

Early Look

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Retail Callouts (9/30): Retail Sales Trends, KATE/COH/KORS, EBAY

Takeaway: Retail growth slowing at measured pace. KATE’s stock is under pressure, but nobody sent e-commerce biz the memo – it’s on fire. eBay’s 180.



Takeaway: Slight deceleration to +3.6% yy vs. +4.1% last week. But as always, we'll always look at the underlying trend -- evidenced by the 2 and 3-year run rate -- which is a much better gauge of the real directional health of the retail climate. Is it collapsing? Absolutely not. But we remain in a measured multi-week downtrend, suggesting that the peak has probably past.  


Retail Callouts (9/30): Retail Sales Trends, KATE/COH/KORS, EBAY - 9 30 chart1


Retail Callouts (9/30): Retail Sales Trends, KATE/COH/KORS, EBAY - 9 30 chart2




KATE's stock can't seem to catch a bid. But nobody sent that memo to the company's online business. Its trends are eclipsing those of Kors and Coach.


Retail Callouts (9/30): Retail Sales Trends, KATE/COH/KORS, EBAY - 9 30 chart3


Retail Callouts (9/30): Retail Sales Trends, KATE/COH/KORS, EBAY - 9 30 chart 4



EBAY - eBay & PayPal to Become Independent Companies in 2015



  • "eBay Inc.  today said its Board of Directors, following a strategic review of the company’s growth strategies and structure, has approved a plan to separate the company’s eBay and PayPal businesses into independent publicly traded companies in 2015, subject to customary conditions. Creating two standalone businesses best positions eBay and PayPal to capitalize on their respective growth opportunities in the rapidly changing global commerce and payments landscape, and is the best path for creating sustainable shareholder value, the company said."


Takeaway: Game, Set and Match: Icahn. Seriously, what happened to EBAY's "PayPal + eBay Better Together" PR blitz?  Talk about a 180 for CEO John Donahoe and the Board. Check out this Fortune article from just seven months ago. The following quote is a good one, but the whole article is a good read -- showing just how quickly executives at even the largest companies can change their mind (or have it changed for them).


Donohoe on Spinning off PayPal:  "Everyone’s like, you have to spin off PayPal. Everyone wants PayPal. We have PayPal! We have what everyone wants! Now, I believe this is the best way to grow PayPal. And part of my challenge and part of what I will be spending time on is getting this message out clearly."







WMT - Instagram CEO and Co-Founder Kevin Systrom Joins Walmart’s Board of Directors



  • "Wal-Mart Stores, Inc. announced that its Board of Directors has appointed Kevin Systrom, an entrepreneur, software engineer and co-founder of photo-sharing service Instagram, as a new member of the company’s Board, effective Sept. 26. Systrom became the 15th member of the Board and will also serve as a member of the company’s Technology and eCommerce Committee and its Compensation, Nominating and Governance Committee."


JCP - J.C. Penney's Rating Outlook Now Stable



  • "Moody’s Investors Service has raised the rating outlook for J.C. Penney Co. Inc. to stable from negative."
  • "The ratings agency said the change in outlook was due to the “successful completion of $400 million senior unsecured notes” to fund the partial tendor offers for Penney’s notes due between 2015 to 2017."


FDO - Family Dollar to match competitor ads



  • "Family Dollar Stores Inc. launches its “Ad Match Promise” program on Sept. 30. When presented with a local competitor’s printed advertisement, Family Dollar stores will match the competitor’s price."


AAP - American Apparel Names Scott Brubaker Interim CEO



  • "The embattled American Apparel Inc. named Alvarez & Marsal executive Scott Brubaker interim chief executive officer Monday."
  • "Brubaker takes over from former chief financial officer John Luttrell, who stepped up after founder Dov Charney was sidelined amid allegations of misconduct."





  • "Barbara LAVERNOS is appointed Executive Vice-President Operations (sourcing, production, supply chain) and member of L’Oréal’s Executive Committee as of November 1st, succeeding Jean-Philippe BLANPAIN."
  • "A graduate of l’École des Hautes Etudes d’Ingénieur, Barbara LAVERNOS, aged 46, joined L’Oréal in 1991 as a buyer at the Aulnay factory, before becoming Head of Purchasing at the Ormes factory for make-up and perfume."


India to See First Juicy Couture Stores in 2015



  • "The first Juicy Couture stores in India are expected to open in fall 2015."
  • "That’s according to Darshan Mehta, president and chief executive officer of Reliance Brands Ltd."
  • "Reliance, a key distributor in India for the premium-to-luxury fashion categories, will open the stores under a newly inked licensing agreement with Authentic Brands Group, which owns the intellectual property assets of Juicy."


ANF - Report: Judge rejects Abercrombie CEO pay settlement



  • "A federal judge has reportedly rejected an Aug. 29 settlement of a lawsuit over the pay received by co-CEO Michael Jeffries. According to Reuters, U.S. District Judge James Graham in Columbus, Ohio, said shareholders belonging to the City of Plantation, Florida Police Officers' Employees' Retirement System, who challenged the $140 million in pay and additional travel expenses Jeffries has received since 2007, give up too much in the settlement."

Is the Sales Environment Improving for Restaurants?

Takeaway: Things appear to be getting better, on the margin, for restaurants. All eyes will be on September's data release.

Black Box same-store sales and traffic trends have been encouraging to-date in 3Q, with July and August same-store sales up +0.5% and +2.1%, respectively.  Although traffic during these two months remained negative, both numbers improved sequentially on a two-year basis.  In many respects, August was the strongest month of sales data we’ve had in over two years.  Is this the start of a trend?  Potentially, but we’ll wait for September’s sales and traffic numbers before we turn outright bullish.  Negative traffic remains an issue, but the key takeaway here is that, on the margin, the macro environment seems to be improving for restaurants. 


Is the Sales Environment Improving for Restaurants? - 9 30 2014 8 39 24 AM 


Howard Penney

Managing Director


Fred Masotta


Japan, Russia and Volatility

Client Talking Points


Abenomics is a centrally planned Policy To Inflate = higher cost of living, not real economic growth; Japanese Household spending -4.7% year-over-year in AUG as real wages fell -2.6% year-over-year. These are the facts.


Maybe Japan and Europe just aren’t being aggressive enough! Russian Rubles are -14% in the last 3 months, its stock market is crashing, and now they need to “defend” the currency? #History has seen this devaluation movie many times.


Most of this ultimately plays out in both volatility and liquidity space, so stay with our playbook = long Global Macro volatility and liquidity – short illiquidity (small caps) with impunity… and manage the risk of trading ranges.

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


Shares of Bloomin’ Brands have enormous potential upside says Hedgeye’s Howard Penney| $BLMN ...via @HedgeyeHWP



Laughter is wine for the soul - laughter soft, or loud and deep, tinged through with seriousness - the hilarious declaration made by man that life is worth living.

-Seán O'Casey


303, the number of yards that the New England Patriots gave up in the first half in last night’s 41-14 loss to the Kansas City Chiefs. 

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