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LEISURE LETTER (10/14/2014)

Tickers: MGM, DRH, HLT, NCLH


  • Oct 15: LVS Q3 earnings 4:30 pm , pw 12611335
  • Oct 17: Hedgeye cruise pricing survey (mid-October)
  • Oct 23: PENN Q3 earnings 11 am
  • Oct 23: LHO Q3 earnings 11 am "La Salle Hotel Properties"
  • Oct 24: PEB Q3 earnings 9 am


MGM & 2282:HK (Bloomberg) MGM China has approached existing lenders to refinance HK$15.6b ($2.01b) 5 year facility signed in July 2012; considers increasing loan size.  Existing loan pays LIBOR +150 bps under current margin matrix.


DRH – announced that it amended its existing approximately $170.4 million mortgage loan secured by The Lexington New York City (the "Hotel"). The loan bears interest at an initial floating rate of LIBOR plus 275 basis points, but features a pricing grid that will further reduce the spread to as low as 175 basis points upon achieving certain hotel cash flow hurdles. The reduced borrowing costs are expected to save the Company between $1.5 million and $2.0 million in annual interest expense.  The amended loan also benefits the Company by extending the potential term of the loan by approximately 30 months to October 2019. 

Takeaway: Nice blend and extend.


HLT (newsday.com) U.S. Government officials say that security issues are playing into their review of Hilton's sale of the New York Waldorf Astoria to Anbang Insurance Group, since a renovation could aid Chinese spying efforts, and the US Ambassador to the UN lives at the hotel. U.S. law allows the department to rent the ambassador's residence for a term of 10 years or less. The current lease expires next year with an option to renew it for one or two years. Kurtis Cooper, a spokesman for the U.S. Mission to the United Nations commented "We are currently in the process of reviewing the details of the sale and the company's long-term plans for the facility." He and other officials said decisions about the future of the U.S. relationship with the Waldorf would be made based on cost, Anbang's long-term plans for the hotel, and the government's needs and security concerns.

Takeaway: Time to start the process of finding a new home.


NCLH – announced that hospitality veteran Drew Madsen has joined as president and COO of NCLH.  Madsen has more than 30 years of leadership experience in the hospitality and consumer products industry, most recently as president and COO at Darden Restaurants.

Takeaway:  We're not big fans of this hire.  DRI has not been a well managed company. 


NCLH (Seatrade Insider) –The acquisition of Prestige Cruises International is moving forward and will likely close by mid-November, said CEO Kevin Sheehan.


Occupy Hong Kong Barricades Removed – Police with power tools tore down Occupy Central protesters' barricades on Queensway in Admiralty this morning, following a dawn operation to remove some barricades in Causeway Bay.

Takeaway: Still not a lot of protest spillover into Macau.


Chinese Officials Detail Occupy Hong Kong Protesters (Sinosphere) According to estimates by activists and foreign diplomats, between 50 and 100 people have been detained, some subsequently released but others held, in mainland China since the “Occupy Central" demonstrations began in Hong Kong in late September. 


China Corruption Crackdown

(China Daily) He Jiacheng, executive vice-president of the Chinese Academy of Governance, and Zhao Shaolin, former secretary-general of the Jiangsu provincial Party committee, are being investigated on suspicion of graft, the Central Commission for Discipline Inspection said on its website.


(Xinhua News) A former senior official of south China's Guangxi Zhuang Autonomous Region was sentenced to 15 years in prison for taking bribes by a local court in northeast China's Jilin Province on Monday.  Li Daqiu, former vice chairman of the Guangxi Zhuang Autonomous Regional Committee of the Chinese People's Political Consultative Conference, was stripped of political rights for four years by the Intermediate People's Court of Yanbian Korean Autonomous Prefecture in Jilin. His property, worth 2 million yuan (326,435 U.S. dollars), was also confiscated.

Takeaway: Crackdown activity notably increasing prior to the Fourth Plenary Session.


Atlantic City Mark to Market (philly.com) Philadelphia developer Bart Blatstein says he and casino architect Paul Steelman agreed to buy the four-story, 300,000 sq. ft., half-empty Caesars Pier shopping center in Atlantic City for a small fraction of its construction cost.  A person familiar with the deal said Blatstein and Steelman agreed to pay $2.8 million, less than 2% of the $200 million plus that developer Taubman Centers Inc., of suburban Detroit, and other investors plowed into the center in the mid-2000s, according to company filings. The partners hope to close the deal later this year.

Takeaway: The lower price on the property sale is a precursor to lower property real estate taxes which in turn will pressure Atlantic City's municipal budget.


Orlando Timeshare Property to be Auctioned– A vacant 890-unit resort in west Orange County, called the Grande Palisades, is set to be auctioned at 11 a.m. in Orlando today. Construction on the massive resort began in 2005 in an area of west Orange that was largely undeveloped but is about 6 miles from the entrance to Walt Disney World.  

Takeaway: Five years after the Global Financial Crisis, the final white elephant is about to find a new home. Will VAC or WYN step-up for this redevelopment opportunity?


Florida Keys Remain Hot – With the volume of tourist visits climbing by six percent annually—there are an anticipated 2.9 million visitors on the way this year—the Keys have taken their place among the best-performing tourism markets in the country. Hotels in the island chain have seen their revenue per available room (RevPAR) returns jump 15 percent in 2013 to $218 per room, nearly 20 percent stronger than Miami’s $183. Through June of this year, the Keys’ RevPAR climbed even further to $234.38.  Twenty-three properties, representing 27 percent of the market’s inventory, have changed hands since 2011. That produced $853 million in sales volume, or roughly $375,000 per key on average.

Takeaway: America's Caribbean - just a short drive from MIA or FLL airports.


Gonzalo scrambles half a dozen Caribbean itineraries Seatrade Insider

Hurricane Gonzalo, moving out over the Atlantic after passing through the Caribbean's northern Leeward Islands, is expected to continue strengthening into a major hurricane Tuesday. Carnival Cruise Lines and Royal Caribbean International have modified half a dozen itineraries between them.


Singapore GDP – expanded 2.4% in the third quarter from the year-ago period, a slower-than-expected, missing a forecast for a 2.8% expansion and following a increase of 2.4% during Q2 2014.

Takeaway:  From a macro standpoint, S'pore has been a mixed picture in Q3.  

German Economic Sentiment Falling – Oct ZEW Economic Sentiment Indicator (3.6) vs consensus 1.0 and prior 6.9, Germany Oct ZEW Current Situation 3.2 vs consensus 18.0 and prior 25.4, Eurozone Oct ZEW Economic Sentiment Indicator 4.1 vs consensus 7.1 and prior 14.2

Takeaway:  Negative German sentiment is not good. Keep an eye on AIDA (Carnival brand) pricing 


Hedgeye Macro Team remains negative on Europe, their bottom-up, qualitative analysis (Growth/Inflation/Policy framework) indicates that the Eurozone is setting up to enter the ugly Quad4 in Q4 (equating to growth decelerates and inflation decelerates) = Europe Slowing.

Takeaway:  We're seeing bottom-up slowing in European cruise pricing in our monthly survey.  Europe has been a tailwind for CCL and RCL but a negative pivot here looks increasingly likely. Following CCL's earnings release, we recently turned negative on those stocks based on the negative European thesis.  To a lesser extent, HOT and HLT are also exposed to European weakness.


Hedgeye Macro Team remains negative on consumer spending and believes in muted inflation, a Quad4 set-up.  Following  a great call on rising housing prices, the Hedgeye Macro/Financials team is 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.

Keith's Macro Notebook 10/14: Japan | Europe | UST 10YR


Takeaway: Remain negative on Macau stocks following another poor week of revenues

Week 2 average daily table revenues (ADTR) fell 25% from the comparable period last year. Month to date ADTR is down 26% YoY, worse than we expected.  Given the 2nd straight disappointing week, we’re lowering our full GGR October YoY growth forecast to down 20-25% from down 15-20%.




Some market participants and investors have been expecting a better turnout from VIPs this past week with the theory that they were escaping the Golden Week limelight.  From the numbers, it is apparent that many VIPs continue to stay away altogether.  We’ve received reports of weak casino traffic this past weekend which isn’t surprising post Golden Week.  Hold percentage was likely more normal this past week but still likely below normal for the first half of October given the results from week 1.


In terms of market share, MPEL and LVS are performing well above trend while Wynn and Galaxy remain below.  We wouldn’t read into the early month market shares as hold percentage is the likely culprit for the shifts. 


SJM benefited this past week from a couple of large VIP punters.  Overall, the Peninsula properties seem to be outperforming Cotai partially due to disappointing mass volumes. 




We remain negative overall on the Macau stocks as revenues remain under pressure and Street estimates do not appear to account for the significant margin pressure we are expecting.  We were in Macau last week so if you’d like an update on our findings please don’t hesitate to reach out.

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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. In today’s edition, we highlight:


  1. The pervasive weakness across the DM Equities space and how the pool of style factor and/or country exposures for cautious investors to "hide out" in has all but evaporated
  2. Sell domestic mega caps (OEF), which are also breaking down, on the bounce


Best of luck out there,


Darius Dale

Associate: Macro Team


TODAY’S S&P 500 SET-UP – October 14, 2014

As we look at today's setup for the S&P 500, the range is 88 points or 1.37% downside to 1849 and 3.32% upside to 1937.                                                          













  • YIELD CURVE: 1.81 from 1.86
  • VIX closed at 24.64 1 day percent change of 16.01%


MACRO DATA POINTS (Bloomberg Estimates):

  • 7:45am: ICSC weekly sales
  • 8:30am: NFIB Small Business Optimism, Sept, est 95.8 (pr 96.1)
  • 8:55am: Redbook weekly sales
  • 11am: U.S. to announce plans to auction of 4W bills
  • 11:30am: U.S. to sell $24b 3M bills, $27b 6M bills
  • 4:30pm: API weekly oil inventories



    • Senate, House out of session
    • Supreme Court may release list of cases it plans to consider
    • Sec. of State John Kerry meets with Russian Foreign Minister Sergei Lavrov in Paris
    • Obama at meeting with >20 foreign defense chiefs/ Joint Chiefs of Staff Chairman Martin Dempsey at Andrews
    • 9am: Mexican Secretary of Economy Ildefonso Guajardo speaks at Woodrow Wilson Center
    • 9:30am: Kaiser Family Foundation releases 50-state Medicaid budget survey, holds briefing
    • U.S. ELECTION WRAP: Debates in Ky, Ark; Ebola; SD Polls, Ads



  • JPMorgan 3Q Profit Misses, Rev Beats; Down 1% Pre-Mkt
  • Too-Big-to-Fail Banks Face Capital Gap of Up to $870b
  • Repo Traders Face FSB Collateral Rule in Shadow Bank Crackdown
  • Google Expands U.S. Shopping Service in Challenge to Amazon.com
  • BlackRock Confident on 5% Growth Target on Shift From Cash
  • EMC Acquiring Cloud Startup Cloudscaling to Boost Storage Sales
  • Billionaire Niel’s Iliad Surges After Dropping T-Mobile US Bid
  • Scrapped Deals at 6-Yr High as Iliad Walks Away From T-Mobile
  • Gazprom 2Q Profit Rises Less Than Forecast; Revenue Increases
  • SABMiller Sales Trail Estimates Amid Weaker Volumes in Asia
  • Chevron Delays $12b Deep Water Drilling Project: Jakarta Post
  • Samsung Electronics to Make Facebook Exclusive Phone: Daily
  • Apple Won’t Introduce Retina Macbook Air on Oct. 16: Re/code
  • Bumble Bee Said to Attract Bids From Thai Union, Mitsubishi
  • CVC Said to Near Accord to Buy Finnish Insulation Maker Paroc
  • Oil Demand Growth This Year Seen Weakest Since 2009 by IEA
  • German Investor Confidence Falls as Growth Prospects Weaken



    • Citigroup (C) 8am, $1.12 - Preview
    • Domino’s Pizza (DPZ) 7:30am, $0.61
    • JB Hunt (JBHT), 8:30am, $0.84 (tentative)
    • Johnson & Johnson (JNJ) 7:45am, $1.44 - Preview
    • Wells Fargo (WFC) 8am, $1.02 - Preview
    • Wolverine World Wide (WWW) 6:30am, $0.59



    • Bank of the Ozarks (OZRK) 5pm, $0.39
    • CSX (CSX) 4:01pm, $0.48
    • Intel (INTC) 4:01pm, $0.65 - Preview
    • Linear Technology (LLTC) 5:01pm, $0.59



  • WTI Extends Drop From 22-Month Low as Demand Slows; Brent Falls
  • Oil Demand Growth This Year Seen Weakest Since 2009 (Correct)
  • Giant Battery Unit Aims at Wind Storage Holy Grail: Commodities
  • Rice Crop Seen Shrinking by FAO on Weather, End of Thai Subsidy
  • Tin’s Price Tumble Seen Slashing Shipments From Indonesia by 30%
  • Cocoa Rebounds After Drop Yesterday; Arabica Coffee Also Gains
  • Gold Trades Near 4-Week High as Investors Weigh Oil to Economy
  • Gold Rises Near 4-Week High as Investors Weigh Economy to Oil
  • Copper Users in Europe Likely to Seek Lower Premiums: Macquarie
  • Rubber Growers Agree to Avoid Selling at Low Prices: IRCo
  • Indian Steel Demand Said to Expand at Slowest Pace in Decade
  • Rubber Climbs Most Since May After Top Producers Price Pledge
  • Thai Gold Exchange May Offer Kilobar Trade Next Year, Jitti Says
  • Rebar Falls Most in 2 Weeks as Exports Surge Amid Overcapacity


























The Hedgeye Macro Team


















Tech Bubble?

This note was originally published at 8am on September 30, 2014 for Hedgeye subscribers.

“This is the real world, homie, school finished.”

-Kanye West


That’s the opening quote to the latest business book I have cracked open, The Hard Thing About Hard Things, by Ben Horowitz (of Andreessen Horowitz fame).


Unlike most of the #behavioral and #history books I’ve been citing throughout the year, this one has a much more #bubbly feel to it. I’m only four chapters in but, suffice it to say, I don’t agree with some of Horowitz’ business building and leadership principles.


Maybe it’s because his parents were communists. Maybe it’s because I’m a knucklehead athlete. I’m not sure. I’m just certain that all of the techie “valley” culture and the Keynesian Economics school stuff isn’t playing out according to plan, in the real world.

Tech Bubble? - Bubble bear cartoon 09.26.2014


Back to the Global Macro Grind


Another one of the 2014 Tech Bubble’s “he’s got mad dough, bro” darlings who is selling his book these days (Peter Thiel) made headlines yesterday in telling Fox Business anchor Deidre Bolton that it wasn’t, well, a Tech Bubble.


Thiel, who blew up his hedge fund, multiple times (buying stocks in 2008, shorting them in 2009, etc.) is as academically intelligent as I can be hockey-head dumb, went on to say that it’s not a bubble in stocks because there is a bubble in bonds.


To be specific, Thiel said “I’m investing in Tech stocks to hide from the government bond bubble.” “So”, I replied (in tweet terms to @peterthiel) “I’m hiding in the Long Bond so that I can be short the Tech Bubble.” #timestamped


Got #Bubbles?


We do. On our Q4 Macro Themes Call we have a whole slide deck full of these suckers. If you’d like to be educated on some #history and #context of the current components of the US stock market bubble, please join us this Thursday at 1PM EST.


While there is plenty of low-quality junk debt in this world that we would consider #bubbly, the upside to fully understanding how all of this might end (Japanese style) is that the mother of all bubbles (Japanese Government Bonds) has been inflating for decades.


While I’m not sure if Thiel joined the ranks of the many who have a higher IQ than I and shorted Japan’s debt because the country’s Keynesian Abenomics experiment was going to fail, the only failure in the real world was not being long those bonds.


Homies, here’s the point:


  1. In the face of failing economic policies, Japan, Europe, and USA have only one option – moarrr #cowbell
  2. As these central planners attempt to artificially inflate economies, they simply inflate asset prices
  3. As asset prices (Tech Bubbles) inflate, so does the cost of living associated with those assets (CA real estate)
  4. As the cost of living rises to pain thresholds consumers cannot overcome, the economy surprises on the downside
  5. Then, central planners respond with moarrr #cowbell


I’m sure Kanye West can come up with a song that’s more clever than what this really is. But I’m pretty sure that the 60% of Americans who have negative real wage growth (read: falling purchasing power) since the Fed engaged with its Policy To Inflate get it.


So do the Japanese. Here’s the latest on that Eastern front:


  1. Japanese Real Wages -2.6% year-over-year in August (vs. -1.6% y/y in July)
  2. Japanese Household Spending -4.7% year-over-year in August (vs. -5.9% in July)


In Mucker rapper terms, that is called getting train wrecked.


Oh, and if you aren’t into Burning Yens and Euros, there’s this other devaluation story to update you on this morning – Russia:


  1. The Russian Ruble dropped -14% in the last 3 months (versus a basket of Dollars and Euros)
  2. The Russian Trading System Index (its stock market) is crashing, -19.1% YTD
  3. And the Ruskies are going to now “defend” their currency by raising interest rates!


As it has, across centuries, this is how the Keynesian School of QE and/or Currency Devaluation ends – epically. I’ll have no problem shorting Treasuries (our call for all of last year) when our research and risk management signals tell me to do so.


But, in the meantime, I’ll stay long of Long-Term Treasuries (via TLT, which has a total return of +17.1% YTD) and short of small cap illiquidity and social tech bubbles via anything that is getting smoked in TAM terms right now.


While the over 40% of IPO’s that are crashing (down 20% or more from peak) aren’t all techie related, both in # of issues and in market cap terms, the froth of this #Bubble in US growth expectations is as big as when Horowitz’s first company almost went bankrupt.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 2.46-2.56%

SPX 1962-1987

RUT 1097-1132

VIX 13.81-16.75

EUR/USD 1.26-1.29

WTI Oil 91.69-94.98


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Tech Bubble? - 09.30.14 10Yr vs. case shiller san fran

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