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Cartoon of the Day: Hedgeye + $TLT = Love

Cartoon of the Day: Hedgeye + $TLT = Love - TLT cartoon 10.07.2014


As the 10-year yield drops back below 2.40%, we reiterate our non-consensus, best macro long idea of the year: Long the Long Bond.


Hedgeye Reiterates Our Non-Consensus Call to Stay Long the Long Bond | $TLT

Takeaway: You down with TLT?

The 10-year Treasury yield has dropped back down to 2.39% after some hoped (prayed?) that Friday’s U.S. jobs report was going to mean they would finally get paid on the short side of bonds.


Well… not so much as the 10-year yield moves back toward full-blown crash mode (-20% year-to-date).


Long the Long Bond remains our best Macro Long Idea for 2014.


Hedgeye Reiterates Our Non-Consensus Call to Stay Long the Long Bond | $TLT - 10.07.14 TLT YTD Performance

Retail Callouts (10/7): ICSC, KATE, TGT, KSS, WMT, AMZN

Takeaway: Quantifying KATE in Hong Kong. TGT focused on the pipe, but needs to get content right. KSS rewards program is misunderstood.



Wednesday (10/8)

COST - Earnings Call: 8:30am


Thursday (10/9)

FDO - Earnings Call: 5:00pm





ICSC Same Store Sales

Takeaway: Sales trends are holding steady, with 3.9% growth for the week, and about 2.8% on a 2 and 3-year trend.


Retail Callouts (10/7): ICSC, KATE, TGT, KSS, WMT, AMZN - 10 7 chart1





H.K. Retail Chains See 50% Sales Drop, Survey Shows



  • "Sales at major Hong Kong retailer chains have fallen as much as 50 percent during the bulk of the Chinese National Day holidays after pro-democracy protests disrupted the shopping season, according to a survey."
  • "Sales dropped at least 15 percent during the first five days of the holidays known as Golden Week, versus a year earlier, the Hong Kong Retail Management Association said in a statement yesterday, citing a survey on its members. Retailers selling watches and jewelry were among the most affected, according to the group."


Takeaway: The situation in Hong Kong is clearly a concern for luxury retailers. Our biggest initial concern was Kate Spade -- that is, until we did the math.  KATE closed on the acquisition of Globalluxe on Feb 12th. That includes Hong Kong, Macau, Taiwan, Singapore, Malaysia, Taiwan, and Indonesia. For some reason the Philippines is not in there.  Globalluxe sales of Kate Spade were $44mm in 2013. About a quarter of their stores are in Hong Kong.  That’d equate to about 1.5% of Revenue if it went away entirely. But that’s probably not going to happen. Let’s say it’s off by 50%. We’re talking 0.8% hit to sales for a company that’s otherwise growing 40%.  For KATE in aggregate, we're really not worried.


TGT - Target Rolls Out Online Tools



  • "Target Corp. is aiming at the Millennial customer with its launch of competitive omnichannel efforts and features that will roll out in the next few weeks."
  • "On Monday, the retailer unveiled many new initiatives that would cater to its young consumer, who will soon be able to readily shop with a full omnichannel experience via e-commerce and separate iPhone and iPad applications."


Takeaway: Props to Target for adding to its omnichannel toolbox. But the reality is that separate iPhone and iPad apps is not something to be celebrated -- it's something that every retailer needs to have. Our sense is that TGT needs to fix what's inside the store and make the brand relevant again to Millennials before it gives that consumer more ways to not shop there.

Retail Callouts (10/7): ICSC, KATE, TGT, KSS, WMT, AMZN - 10 7 chart2



KSS - Kohl’s Pioneers New Approach to Customer Engagement with Launch of Yes2You Rewards Loyalty Program



  • "Kohl’s Department Stores today launched Yes2You Rewards™ nationwide, introducing an innovative approach to customer loyalty focused on building deeper relationships to provide a more personalized, value-driven shopping experience at Kohl’s stores and Kohls.com."


Takeaway: Put in simple terms, this is a decoupling of KSS' credit card from its loyalty program. Previously, anyone that wanted to enroll in the 'rewards program' also had to have a KSS Credit Card.  This is a program with CapitalOne, switched three years ago from Chase. It's worth noting that the average credit scores for CapitalOne's portfolio range from 600-650 compared to Chase at 700-750. Earlier this year KSS decoupled it in Pittsburgh, Milwaukee, and most markets in Texas and California. In our recent survey, 18% of people said that they are members of KSS rewards program, which is the highest rate of any department store in our survey. The interesting thing is that 57% of KSS Sales flow through the credit card -- up from 47% 5-years ago. While it's possible that Kohl's 'Pioneered Approach to Customer Engagement' increases customer loyalty, we'd actually wonder if this gives an outlet for current rewards members to no longer use the KSS card. KSS flowed $407mm in credit card income through its P&L as an offset to SG&A last year -- that's 9.5% of total SG&A. That's probably headed down, not up.


Retail Callouts (10/7): ICSC, KATE, TGT, KSS, WMT, AMZN - 10 7 kss1


Retail Callouts (10/7): ICSC, KATE, TGT, KSS, WMT, AMZN - 10 7 kss 2




AMZN - Amazon’s Luxembourg Taxes Under Fire as EU Expands Global Probe



  • "Amazon.com Inc. faces an in-depth European Union probe into a 2003 fiscal deal with Luxembourg over suspicions the company unfairly shifted profits to the country to lower its taxes."
  • "Most European profits of Amazon are recorded in Luxembourg but are not taxed there as a result of the pact, which is still in force today and applies to a subsidiary in the Grand Duchy, the EU said in a statement."


TGT - Target in same-day curbside pickup pilot with startup Curbside



  • "Curbside, a new startup that specializes in same-day pickup from local stores, launched its service on Monday with several retailers on board, including a pilot with Target Corp."
  • "The new service is currently available in 10 Target stores across the greater San Francisco Bay area, including the retailer’s Metreon and Geary St. locations downtown."


WMT - Walmart expands role in health care with in-store one-stop insurance shopping



  • "Walmart is expanding its role in health care. The retail giant is teaming up with DirectHealth.com, an online health insurance comparison site and agency, to set up counters in its stores where shoppers can speak with licensed agents about available health insurance options. Walmart’s expanding role in health care comes as drug store chains, including Walgreens and CVS, continue to beef up their own healthcare services."


WMT - Wal-Mart Moves Forward on Made in USA Push



  • "Wal-Mart Stores Inc. has been making good on its pledge to spend $250 million over 10 years on products made in the U.S."
  • "Since the initiative was launched in January 2013, the retail giant has been forging ahead. In July, Wal-Mart held its first open call for products made in the U.S. The event attracted 500 suppliers and generated 800 meetings. Buyers had their pencils out."

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LEISURE LETTER (10/07/2014)

Tickers: HST, MAR, CCL, RCL, MTN


  • Wed Oct 8 & Thurs Oct 9:  Todd Jordan in Macau
  • Wed Oct 8  HT Investor Day


27:HK – (GGRAsia) During September 2014, Galaxy Entertainment Group retook top market share with 22.9% of GGR for the month.

Takeaway: Galaxy is our preferred operator for clients seeking long exposure to the Macau gaming market due to the early 2015 opening of Galaxy Macau Phase 2.


HST – announced the sale of Tampa Marriott for $199 million and the acquisitions of B2 Miami Downtown Hotel for $57.5 million and a 90% interest in Grand Hotel Esplanade Berlin for Euro 81 million via the European JV. 

Takeaway: HST continues to reposition its portfolio in its focus/core markets.


MAR – priced $400mm 7yr. senior unsecured notes at 99.314, Series N at 3.125% = Treasuries +110 bps. The offering was upsized from $300m and better than original pricing terms of T+120-125 bps. JPM, WFC, DB were joint book running managers.

Takeaway: Better than expected terms - an upsized offering at a lower coupon - a hoteliers dream and easy debt.


CCL – extended its 'Reuniting for Fun' group promotion through the end of October based on travel agent response. With the promotion, an initial deposit is not required for group bookings on departures between March 1, 2015, and April 30, 2016. In addition, Carnival is offering travel agents one free cruise berth for every 10 full fare passengers berthed, compared to the line’s current policy of one free cruise berth for every 15 full fare passengers. As a special bonus, Carnival is offering one free cruise berth for every eight full fare passengers berthed on select five- to 14-day sailings from a number of US homeports, including Galveston, Baltimore, New York, San Juan and Port Canaveral.


CCL –Holland America Line canceled Veendam's Oct. 11 cruise and is sending the ship to drydock in Philadelphia to complete repairs to one of the propellers. This was the third cruise cancellation for Veendam after a problem was identified while the ship was in Québec last weekend and it was been determined that a complete repair can only be made in a drydock. Passengers will receive a full refund of their fare plus a future cruise credit of 100% equal to the fare paid. In addition, HAL will reimburse non-refundable expenses such as missed tours and excursions that were purchased through the line.

Takeaway: Another unfortunately delay for this vessel.


RCL – Oasis of the Seas, The Royal Caribbean International vessel arrived in Rotterdam last week and will stay in dry-dock for almost two weeks for a planned five-year routine maintenance update before departing from Rotterdam Cruise Terminal on October 14 for a 13-night trans-Atlantic cruise to Port Everglades, including a UK stopover in Southampton to pick up passengers on the following day.

Takeaway: Retooling just prior to peak sailing season.


MTN – snow is in the forecast!  According to weather.com rain and snow showers are in the extended forecast for late Saturday evening, Sunday and Sunday evening for Vail and Breckenridge, Colorado.

Takeaway: Let it snow, time to dust-off and wax up the skis! 


Macau Smoking Rooms Confirmed (GGRAsia) Macau’s Health Bureau has confirmed the 12 gaming venues that have received official approval for smoking lounges for their main casino floor patrons, including: the casino at StarWorld, operated by Galaxy Entertainment Group Ltd; the casinos at Sands Macao, the Venetian Macao and Sands Cotai Central respectively, operated by Sands China Ltd; and the casino at Wynn Macau, operated by Wynn Macau Ltd.  However, that means some of Macau’s biggest and most profitable casinos have main floors that are currently entirely smoke free.  Those venues with no approval as of Monday night for mass floor smoking rooms are: Galaxy Macau, run by Galaxy Entertainment; Altira Macau and City of Dreams run by Melco Crown Entertainment Ltd; MGM Macau, operated by MGM China Holdings Ltd; and Casino Grand Lisboa and Casino Lisboa run by SJM Holdings Ltd.  VIP areas – though not premium mass areas – have been excluded from the smoking ban.

Takeaway: We are also hearing the Plaza Casino at Sand China Limited's Four Seasons is also entirely non-smoking as no smoking parlors were installed.


Macau Golden Week GGR (GGRAsia) Average daily revenue (ADR) in Macau casinos rose to more than HKD970 million in the first five days of the week-long Chinese national holiday, compared to HKD870 million in the final weeks of September. The early look on ADR translates into nearly a 40% YoY decline GGR during the period. 

Takeaway: Significantly slower ADR growth is consistent with our VIP and mass deceleration thesis.


Japan Gaming Enabling Legislation (Jiji Press) The fate of a bill aimed at lifting a ban on casinos in Japan remains uncertain as even ruling coalition lawmakers are concerned that the measure will increase gambling addiction and organized crimes. Chief Cabinet Secretary Yoshihide Suga told a press conference on Friday that the government will "make all-out efforts" to enact the bill during the ongoing Diet session set to end late next month. The bill was submitted to the Diet in December last year by a group of lawmakers including those from Abe's ruling Liberal Democratic Party.

Takeaway: Never a done deal until the party leaders agree and say so.


Revel Auction Unsettled (Press of Atlantic City) Glenn Straub, the losing bidder in a bankruptcy court auction for Atlantic City’s former Revel Casino Hotel plans to challenge the result at Tuesday’s hearing in Camden. Among Straub's main complaints is that Revel improperly accepted a bid from Brookfield after a specified deadline, that Revel’s attorneys reneged on an agreement to share information with him on competing bids, and that six hours of closed-door meetings on what was supposed to be the first day of bidding was improper. Straub is considering whether to make an offer exceeding $110 million at the hearing, which the lawyer says the judge has the power to accept.

Takeaway: LIke all real estate transactions, big egos fill the room.


Illinois Gaming Expansion (Chicago Daily Herald) A year long debate over whether Arlington International Racecourse should have slot machines and Lake County and Chicago should have casinos is likely to continue under the next governor, no matter who it is. Both Democratic Gov. Pat Quinn and his challenger, Republican Bruce Rauner, told the Daily Herald editorial board they are open to the idea of adding more gambling options in Illinois, including in the suburbs.

Takeaway: Good for the equipment manufactures. 


Precursor Wave Season Sale – all major cruise lines (CCL, NCLH, RCL, DIS, HAL, etc.) are are taking part in Cruise Lines International Association's biggest annual consumer promotion, now called CLIA Cruise Week. The Oct. 6-13 event offers deals aboard more than 200 ships, including those belonging to river and specialty operators.

Takeaway: More early season discounting to drive early occupancy and load factors.

Italian Cruise Tourism – Italy is facing another year of declining ship calls and cruise passengers, according to Francesco di Cesare, president of Risposte Turismo research and consulting company. According to di Cesare’s figures, calls at Italian ports this year will be down 8.97% and passenger numbers 9.36%, compared to 2013. These translate to 10.3m passengers and 4,676 calls - the lowest in the last four years.

Takeaway: High water in Venice partially contributing to lower traffic.


Lodging Transaction – Carey Watermark Investors (CWI) just grabbed the Sawgrass Marriott Golf Resort & Spa, a 511-unit golf resort and spa in Ponte Vedra Beach, FL. CWI acquired the asset from an affiliate of Goldman Sachs and Petra Capital Management. Financial terms of the deal were not disclosed. The resort last sold in 2006 for $220 million. The resort saw a $20.3 million renovation in early 2014. CWI plans to invest an additional $25 million to further to improve the property.

Takeaway: Another upper-upscale property located in South Florida crosses the market.


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.

Macro Notebook 10/7: USD | UST 10YR | Russell 2000


Takeaway: VIP and Mass slowing continues, we expect additional mass deceleration owing to increased margin pressures

The GGR decline of 12% was only part of the story


  • Expectations for September market wide GGR ratcheted lower following August’s details, as a result September’s GGR decline of 12% was in line with recently revised lower expectations.  
  • Mass revenue growth was 15%, confirming our Mass Decelerating thesis for 2H 2014 and we expect additional deceleration during Q4 2014 and Q1 2015.
  • We remain concerned with the potential for continued margin pressure as labor costs continue to escalate and player reinvestment rates rise. 
  • While stock valuations look attractive but we don’t see any positive catalyst on the near term horizon.
  • We remain cautious on the Macau stocks with the exception of Galaxy.



Macau Market:

  • As already known, GGR fell 12%
  • What was not known was that VIP growth was -26%, a further deceleration from August’s -17% and -16% contraction for the prior three months.
  • Mass YoY growth only +15%, slightly above August’s increase of +14% and the third month of mid-teens Mass growth as compared to 1H 2014 growth of +36%.
  • Our Mass Decelerating theme (first espoused in June) of 2H 2014 is continuing and we expect additional mass deceleration during Q4 2014 and Q1 2015 – at a faster (slower growth) rate than even we thought.
  • VIP hold was close to normal for the market and slightly higher than last year
  • Rolling Chip volume declined 19% YoY – the second sequential month of such a decline and the worst performance since early 2009
  • Galaxy & MGM performed well while LVS was below trend.




  • Market share dropped to 21.8%, 110bps below the 6 month average driven by very high hold
  • VIP revenues declined nearly 14% YoY, while hold was higher than expected at almost 3.6% a 15 bps improvement YoY.
  • Disappointing GGR growth was driven by Rolling Chip volume that fell 39% YoY, worst in the market
  • Mass revenue grew 15%


  • Market share increased 20bps above the 6 month average due strong Mass revenues
  • Wynn’s VIP hold percentage fell about 60bps on a YoY basis but was respectable near 3.1%
  • GGR fell 16% YoY due to lower VIP hold but Mass revenue grew at 29%
  • Rolling Chip volume dropped 19% in line with the market


  • Galaxy’s GGR share was 22.8% an improvement of 190 bps from August and 240 bps above the 6 month average
  • Galaxy’s estimated VIP hold improved 35 bps YoY and was near 3.55% for September
  • YoY GGR growth of 9% led the market based on market leading VIP growth of 9% and Mass growth of only 10%
  • Galaxy remains our favorite stock in the group given its ability to drive VIP revenue growth amid a difficult environment and the likely earlier than expected opening of Phase II on Cotai.  We think Phase II could operate for 6-9 months as the only new property on Cotai


  • MPEL’s GGR share was 12.6% a decline of 30 bps over the 6 month average
  • GGR dropped more than 19% due in part to lower VIP hold and a nearly 35% decline in Rolling Chip volume
  • While below last year, MPEL’s September VIP hold was a slight below normal and down almost 50 bps on a YoY basis
  • Mass revenues declined 20%


  • MGM GGR share was 11.1% an increase of 180 bps over the 6 month average and 230 bps above July and August details
  • YoY GGR driven by high hold near 3.4% an increase of 70 bps YoY
  • Market leading Mass revenue growth was +36%
  • Rolling Chip volume declined 26%
  • Mass share was slightly better than the 6 month average

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