Takeaway: Case-Shiller HPI deceleration consistent with Corelogic. The next print from Corelogic will be an important waypoint for housing equities.

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. 




Today's Focus: July S&P/Case-Shiller Home Price Report


Key Takeaways

Home price growth as measured by the Case-Shiller 20-city composite decelerated -140bps sequentially to +6.7% YoY.  The slowdown in July represents the 8th consecutive month of deceleration and the 2nd consecutive month of flat or declining growth across all cities. 


As a reminder, the Case-Shiller HPI series is constructed as a 3-month moving average so the July release reflects HPI changes over the May-to-July period, effectively amounting to June data.  With July data from Corelogic in hand for almost a month already, we knew the slope and likely magnitude of the deceleration for Case-Shiller in July. We should get the Corelogic home price report for August (along with their best econometric guess for September) in the next day or two, which will be the far more important report.   


As we highlighted last month (Corelogic HPI - THE DILEMMA), the abrupt, positive inflection in the 2nd derivative HPI as reported by Corelogic was notable because, historically, equity prices across the housing complex have followed the slope in home price growth very tightly. 


Given the embedded lag in the Case-Shiller data, we’ll have to wait for next month’s release for corroborating evidence of the fledgling inflection in the Corelogic series.   










CASE-SHILLER FOLLOWS THE SLOPE OF CORELOGIC - CS Index weight vs Price growth Scatter 


Bottom Line:

Housing-related equities follow the path of HPI. So long as HPI is decelerating, housing equities will move sideways to lower. We can forecast HPI's path by looking at demand trends on a 12-18 month lead/lag basis. Our expectation is that prices continue to decelerate throughout 2H14 and potentially into 1H15.



About Case Shiller:

The S&P/Case-Shiller Home Price Index measures the changes in value of residential real estate by tracking single-family home re-sales in 20 metropolitan areas across the US. The index uses purchase price information obtained from county assessor and recorder offices. The Case-Shiller indexes are value-weighted, meaning price trends for more expensive homes have greater influence on estimated price changes than other homes. It is vital to note that the index’s printed number is a 3-month rolling average released on a two month delay.


Frequency and Release Date:

The S&P/Case-Shiller HPI is released on the last Tuesday of every month. The index is on a two month lag and therefore does not reflect the most recent month’s home prices.



Joshua Steiner, CFA


Christian B. Drake

Keith's Macro Notebook 9/30: Japan | Russia | Vix

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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.

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."

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